Issue of Licences and Allocation of 2G Spectrum - …drop.ndtv.com/pdf/CAG.pdf · shift to a revenue sharing regime in National Telecom Policy ... Issue of Licences and Allocation

Performance Audit Reporton the

by the Department of Telecommunications

Ministry of Communications and Information Technology

Issue of Licences and Allocation of 2G Spectrum

Report of theComptroller and Auditor General of India

Union Government (Civil)No. 19 of 2010-11

(Performance Audit)





Report of the

Comptroller and Auditor General

of India

for the year ended March 2010


(Performance Audit)





Report of the

Comptroller and Auditor General

of India

for the year ended March 2010


(Performance Audit)

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications

PrefaceExecutive Summary

Growth in Telecom Sector

Overview of Policies

Methodology for Entry and Fee Structure in Various Policy Regimes

Role of Telecom Regulatory Authority of India (TRAI)

Organisational Arrangement

Issue of Licenses

Spectrum Allocation

Audit Scope and Methodology

Audit Objectives

Organisation of Audit Findings

Acknowledgement

Gaps in implementation of UAS Regime

Issue of price discovery of spectrum was over looked

Move from Unified Access Service to Unified Licensing – Not Reviewed For 6 Years

Issue of UAS Licenses and Allocation of 2G spectrum

Approval of Telecom Commission not taken

Advice of Hon'ble Minister of Law & Justice was ignored by DoT

Hon'ble Prime Minister's suggestion to reconsider pricing was ignored

Chapter 1: Introduction

Chapter 2: Audit Approach

Chapter 3: Implementation of Unified Licensing Regime

Chapter 4: Procedures Adopted in Issue of UAS Licences and Allotment of Spectrum

1.1

1.2

1.3

1.4

1.5

1.6

1.7

2.1

2.2

2.3

2.4

3.1

3.2

3.3

4.1

4.2

4.3

4.4

Contents

1.1

1.2

1.3

1.4

1.5

1.6

1.7

2.1

2.2

2.3

2.4

3.1

3.2

3.3

4.1

4.2

4.3

4.4

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PrefaceExecutive Summary

Growth in Telecom Sector

Overview of Policies

Methodology for Entry and Fee Structure in Various Policy Regimes

Role of Telecom Regulatory Authority of India (TRAI)

Organisational Arrangement

Issue of Licenses

Spectrum Allocation


Audit Objectives

Organisation of Audit Findings

Acknowledgement

Gaps in implementation of UAS Regime

Issue of price discovery of spectrum was over looked

Move from Unified Access Service to Unified Licensing – Not Reviewed For 6 Years

Issue of UAS Licenses and Allocation of 2G spectrum

Approval of Telecom Commission not taken

Advice of Hon'ble Minister of Law & Justice was ignored by DoT

Hon'ble Prime Minister's suggestion to reconsider pricing was ignored

Chapter 1: Introduction

Chapter 2: Audit Approach

Chapter 3: Implementation of Unified Licensing Regime

Chapter 4: Procedures Adopted in Issue of UAS Licences and Allotment of Spectrum

1.1

1.2

1.3

1.4

1.5

1.6

1.7

2.1

2.2

2.3

2.4

3.1

3.2

3.3

4.1

4.2

4.3

4.4

Contents

1.1

1.2

1.3

1.4

1.5

1.6

1.7

2.1

2.2

2.3

2.4

3.1

3.2

3.3

4.1

4.2

4.3

4.4

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Concerns of Ministry of Finance & Finance wing of DoT on continuance of entry fee fixed in 2001 were overlooked

Multiple Activities on 10 January 2008

Issue of UAS Licence to ineligible applicants

Access to Dual Technology

Undue advantage to Swan Telecom Private Ltd in allocation of Spectrum

Value of Spectrum allocated beyond the contractual quantity

Non fulfillment of the Roll out Obligations by the New Telecom Licensees

Introduction

Under – pricing of 2G Spectrum and Consequent Loss

Value Based on Prices Discovered for 3G Spectrum

Sale of Equity by UAS Licensee Firms at Higher Value

Indicators of the Value of 2G spectrum

4.5

4.6

4.7

4.8

4.9

4.10

4.11

5.1

5.2

5.3

5.4

5.5

Chapter 5: Financial Impact

Chapter 6: Conclusion

Annexure - I

Annexure – II

Annexure – III

Annexure – IV

Annexure – V

Annexure – VI

Annexure – VII

4.5

4.6

4.7

4.8

4.9

4.10

4.11

5.1

5.2

5.3

5.4

5.5

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Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications i

Preface

This Report for the year ended March 2010 has

been prepared for submission to the President

under Article 151 of the Constitution.

The Report contains the results of examination by

Audit of the Issue of Licenses and Allocation of 2G

Spectrum of Department of Telecommunications,

Ministry of Communication and Information

Technology. The audit covers the period from

2003-04 to 2009-10.


Concerns of Ministry of Finance & Finance wing of DoT on continuance of entry fee fixed in 2001 were overlooked

Multiple Activities on 10 January 2008

Issue of UAS Licence to ineligible applicants

Access to Dual Technology

Undue advantage to Swan Telecom Private Ltd in allocation of Spectrum

Value of Spectrum allocated beyond the contractual quantity

Non fulfillment of the Roll out Obligations by the New Telecom Licensees

Introduction

Under – pricing of 2G Spectrum and Consequent Loss

Value Based on Prices Discovered for 3G Spectrum

Sale of Equity by UAS Licensee Firms at Higher Value

Indicators of the Value of 2G spectrum

4.5

4.6

4.7

4.8

4.9

4.10

4.11

5.1

5.2

5.3

5.4

5.5

Chapter 5: Financial Impact

Chapter 6: Conclusion

Annexure - I

Annexure – II

Annexure – III

Annexure – IV

Annexure – V

Annexure – VI

Annexure – VII

4.5

4.6

4.7

4.8

4.9

4.10

4.11

5.1

5.2

5.3

5.4

5.5

26

27

31

46

48

49

50

51

51

52

53

54

56

57

63

64

66

68

70

73

76

Pages

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications i

Preface

This Report for the year ended March 2010 has

been prepared for submission to the President

under Article 151 of the Constitution.

The Report contains the results of examination by

Audit of the Issue of Licenses and Allocation of 2G

Spectrum of Department of Telecommunications,

Ministry of Communication and Information

Technology. The audit covers the period from

2003-04 to 2009-10.

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications iii

Executive Summary

In the last two decades the telecom sector witnessed rapid transformation with the National

Telecom Policy-94 setting the stage for opening up of the sector. With changes in the sector,

cellular mobile services outgrew the fixed line services. The most important change was the

shift to a revenue sharing regime in National Telecom Policy (NTP) 1999 where the operators

shared their revenue with the Government in the form of annual licence fee and spectrum

charges. The Unified Access Services Licence (UASL) 2003 sought to frame the road map for a

uniform licencing regime.

This sector has witnessed dynamic and rapid transition. It had been subject to audit and a

report titled “Package of Concessions Given to Cellular Mobile Operators” was presented to

Parliament in May 2000. A further review of the “Revenue Management in the Department of

Telecommunications” was also undertaken by this office in 2004-05. This review mainly focused

on the system of collection and accounting of licence fee and spectrum charges from the

licensees. The Report based on this review was presented to Parliament in May 2006.

In January 2008, Department of Telecommunications issued 120 new licences for unified access

services on the same day. These licences were issued at price which had been discovered in

2001. Issuance of 120 licences in just one day and at a price discovered in 2001 has drawn the

attention of Media, Parliament and informed members of the civil society. Questions have been

raised regarding the transparency in the allocation process and the failure in maximization of

revenue generation from the allocation of spectrum, which is a national asset. This department

had been receiving innumerable references from Members of Parliament and other sources

repeatedly, questioning the allocation process and the price fixed for such allocation. The claim

in each such reference is that ineligible applicants seem to have been granted licences and at a

price which appeared far below what has been perceived to be the appropriate market price in

2008. It was in this context that this department felt that there was a sufficient justification to

review the entire process of issuance of licences, award of spectrum and the implementation of

the UAS regime. The need for doing so was further justified as six years have passed since the

introduction of the UAS regime in 2003. While accepting the Government's prerogative to

formulate the policy of UASL, it was felt that an in-depth examination of implementation of such

policy needed to be done.

I. Changes in the Telecommunications sector in India

II. Why did we decide to do an audit on the Issue of Licence and allocation of Spectrum now?

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications iii

Executive Summary

In the last two decades the telecom sector witnessed rapid transformation with the National

Telecom Policy-94 setting the stage for opening up of the sector. With changes in the sector,

cellular mobile services outgrew the fixed line services. The most important change was the

shift to a revenue sharing regime in National Telecom Policy (NTP) 1999 where the operators

shared their revenue with the Government in the form of annual licence fee and spectrum

charges. The Unified Access Services Licence (UASL) 2003 sought to frame the road map for a

uniform licencing regime.

This sector has witnessed dynamic and rapid transition. It had been subject to audit and a

report titled “Package of Concessions Given to Cellular Mobile Operators” was presented to

Parliament in May 2000. A further review of the “Revenue Management in the Department of

Telecommunications” was also undertaken by this office in 2004-05. This review mainly focused

on the system of collection and accounting of licence fee and spectrum charges from the

licensees. The Report based on this review was presented to Parliament in May 2006.

In January 2008, Department of Telecommunications issued 120 new licences for unified access

services on the same day. These licences were issued at price which had been discovered in

2001. Issuance of 120 licences in just one day and at a price discovered in 2001 has drawn the

attention of Media, Parliament and informed members of the civil society. Questions have been

raised regarding the transparency in the allocation process and the failure in maximization of

revenue generation from the allocation of spectrum, which is a national asset. This department

had been receiving innumerable references from Members of Parliament and other sources

repeatedly, questioning the allocation process and the price fixed for such allocation. The claim

in each such reference is that ineligible applicants seem to have been granted licences and at a

price which appeared far below what has been perceived to be the appropriate market price in

2008. It was in this context that this department felt that there was a sufficient justification to

review the entire process of issuance of licences, award of spectrum and the implementation of

the UAS regime. The need for doing so was further justified as six years have passed since the

introduction of the UAS regime in 2003. While accepting the Government's prerogative to

formulate the policy of UASL, it was felt that an in-depth examination of implementation of such

policy needed to be done.

I. Changes in the Telecommunications sector in India

II. Why did we decide to do an audit on the Issue of Licence and allocation of Spectrum now?

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunicationsiv

Chapter 1 and 2 of this Report give the Policy Overview, System of issue of licences & allotment

of spectrum and the Audit Approach. In Chapter 3, we have narrated the Audit findings relating

to the implementation of UAS policy and Chapter 4 details the findings on the procedural

lapses. Chapter 5 attempts to highlight the various indicators available to assess the

presumptive value of spectrum. To attempt at deriving a maximum realizable economic value

for allocation of 2G spectrum licences in 2008, recourse would have to be taken to a menu of

different economic models. Each such model would be based on certain assumptions which

may not necessarily be obtained when Government decides on a price for a scarce national

asset as there would be no foolproof market discovery mechanism at any point of time. Each set

of assumptions underlying the economic models could be open to questions and be disputed.

For this reason we have only attempted to arrive at a presumptive value in this Report.

In August 2003 TRAI had submitted a Report recommending a road map for allocation of

licences. This Report formed the basis for the UAS policy approved by the Council of

Ministers in October 2003. The implementation of UASL regime was to be carried out in

two phases with first phase of six months assigned for migration of already existing Basic

Service Operators (BSOs) and Cellular Mobile Service Operators (CMSOs) to the new

regime. The entry fee for migration of BSOs was determined as the fee equal to what was

paid by the fourth cellular operator introduced through multi-stage bidding process in

2001. CMSOs were not required to pay any entry fee for migrating as they had already

entered the market through a bidding process and thus paid a market determined price.

The second phase was to start after the first phase in which a Unified Licencing regime,

with a nominal entry fee for the licence with the spectrum being charged separately, was

envisaged.

However, Audit examination reveals that the Department of Telecom did not implement

the licensing regime as approved by the Cabinet and implemented only the first phase of

the policy, overlooking the second phase. In the actual implementation, the interim stage

of implementation seems to have become the final destination. This appears to have

become the underlying factor, quite erroneously, to value the spectrum in 2008 at 2001

prices. An important objective of this policy decision to delink the prices of spectrum from

the issue of licence and devise an efficient allocation formula for spectrum along with an

appropriate price, remained unachieved. Ministry of Finance was authorized by the

Cabinet decision of 2003 to participate in the discussion for efficient allocation of

spectrum and price fixation but DOT decided not to associate the Ministry of Finance.

III. How this Report is Organised?

IV. Major Findings

(i) Gaps in policy implementation

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications v

As a consequence of such lacunae in the implementation of the policy laid down by the

Council of Ministers in 2003 the issuance of licences in 2008 along with allocation of

spectrum has been done by DoT at prices determined in 2001 which were based on a

totally nascent market despite the sector witnessing substantial transformation and

manifold growth. The issue was never placed before Cabinet for a review.

(Paras 3.1, 3.2, 3.3)

From a scrutiny of the records and information made available it appears that the High

Powered Telecom Commission which also includes part time members from the Ministry

of Finance, Industry, IT and Planning Commission was not apprised of the TRAI

recommendations of August 2007 and hence, was not afforded an opportunity to

deliberate on the merits of the TRAI recommendations. It is also seen that the High

Powered Telecom Commission was not even consulted at the time of grant of 122 UAS

licences in 2008.

(Paras 4.2, 4.5)

It was noted in Audit that DoT managed to keep the issue of spectrum pricing outside the

purview of the GoM. The GoM's role in December 2006 was confined to issues concerning

spectrum vacation. The ToRs left out the other two issues of efficient allocation and

pricing, while all three were pronounced in the policy decision of 2003. Thus by getting the

spectrum pricing issue deleted from the ToR, the DoT completely side-tracked the pricing

issues.

(Para 3.2)

It has also been revealed in the course of audit that the Ministry of Finance, in November

2007, had questioned the sanctity of continuing with the price determined way back in

2001 without any indexation or current valuation. The Ministry had sought a review of the

matter. This advice of the Ministry of Finance was overlooked by the DoT ostensibly on the

basis of a four-year old Cabinet decision (October 2003) on the premise that it was

authorized to calculate the entry fee for licences as per the recommendations of TRAI in

2003 . DoT maintained that 'spectrum pricing was within the normal work carried out by

them.'

(Para 4.5)

(ii) Telecom Commission was not consulted

(iii) Views and concerns of Ministry of Finance overruled

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunicationsiv

Chapter 1 and 2 of this Report give the Policy Overview, System of issue of licences & allotment

of spectrum and the Audit Approach. In Chapter 3, we have narrated the Audit findings relating

to the implementation of UAS policy and Chapter 4 details the findings on the procedural

lapses. Chapter 5 attempts to highlight the various indicators available to assess the

presumptive value of spectrum. To attempt at deriving a maximum realizable economic value

for allocation of 2G spectrum licences in 2008, recourse would have to be taken to a menu of

different economic models. Each such model would be based on certain assumptions which

may not necessarily be obtained when Government decides on a price for a scarce national

asset as there would be no foolproof market discovery mechanism at any point of time. Each set

of assumptions underlying the economic models could be open to questions and be disputed.

For this reason we have only attempted to arrive at a presumptive value in this Report.

In August 2003 TRAI had submitted a Report recommending a road map for allocation of

licences. This Report formed the basis for the UAS policy approved by the Council of

Ministers in October 2003. The implementation of UASL regime was to be carried out in

two phases with first phase of six months assigned for migration of already existing Basic

Service Operators (BSOs) and Cellular Mobile Service Operators (CMSOs) to the new

regime. The entry fee for migration of BSOs was determined as the fee equal to what was

paid by the fourth cellular operator introduced through multi-stage bidding process in

2001. CMSOs were not required to pay any entry fee for migrating as they had already

entered the market through a bidding process and thus paid a market determined price.

The second phase was to start after the first phase in which a Unified Licencing regime,

with a nominal entry fee for the licence with the spectrum being charged separately, was

envisaged.

However, Audit examination reveals that the Department of Telecom did not implement

the licensing regime as approved by the Cabinet and implemented only the first phase of

the policy, overlooking the second phase. In the actual implementation, the interim stage

of implementation seems to have become the final destination. This appears to have

become the underlying factor, quite erroneously, to value the spectrum in 2008 at 2001

prices. An important objective of this policy decision to delink the prices of spectrum from

the issue of licence and devise an efficient allocation formula for spectrum along with an

appropriate price, remained unachieved. Ministry of Finance was authorized by the

Cabinet decision of 2003 to participate in the discussion for efficient allocation of

spectrum and price fixation but DOT decided not to associate the Ministry of Finance.

III. How this Report is Organised?

IV. Major Findings

(i) Gaps in policy implementation

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications v

As a consequence of such lacunae in the implementation of the policy laid down by the

Council of Ministers in 2003 the issuance of licences in 2008 along with allocation of

spectrum has been done by DoT at prices determined in 2001 which were based on a

totally nascent market despite the sector witnessing substantial transformation and

manifold growth. The issue was never placed before Cabinet for a review.

(Paras 3.1, 3.2, 3.3)

From a scrutiny of the records and information made available it appears that the High

Powered Telecom Commission which also includes part time members from the Ministry

of Finance, Industry, IT and Planning Commission was not apprised of the TRAI

recommendations of August 2007 and hence, was not afforded an opportunity to

deliberate on the merits of the TRAI recommendations. It is also seen that the High

Powered Telecom Commission was not even consulted at the time of grant of 122 UAS

licences in 2008.

(Paras 4.2, 4.5)

It was noted in Audit that DoT managed to keep the issue of spectrum pricing outside the

purview of the GoM. The GoM's role in December 2006 was confined to issues concerning

spectrum vacation. The ToRs left out the other two issues of efficient allocation and

pricing, while all three were pronounced in the policy decision of 2003. Thus by getting the

spectrum pricing issue deleted from the ToR, the DoT completely side-tracked the pricing

issues.

(Para 3.2)

It has also been revealed in the course of audit that the Ministry of Finance, in November

2007, had questioned the sanctity of continuing with the price determined way back in

2001 without any indexation or current valuation. The Ministry had sought a review of the

matter. This advice of the Ministry of Finance was overlooked by the DoT ostensibly on the

basis of a four-year old Cabinet decision (October 2003) on the premise that it was

authorized to calculate the entry fee for licences as per the recommendations of TRAI in

2003 . DoT maintained that 'spectrum pricing was within the normal work carried out by

them.'

(Para 4.5)

(ii) Telecom Commission was not consulted

(iii) Views and concerns of Ministry of Finance overruled

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunicationsvi

In October 2007 at its own initiative, the DoT requested the Ministry of Law and Justice to

obtain and communicate the opinion of the Attorney General/Solicitor General of India to

enable the DoT to handle an unprecedented rush of applications in a fair and equitable

manner which would be legally tenable. The Ministry of Law, at the level of the Hon'ble

Minister, opined that in view of the importance of the case and the various options which

seem to have emerged, it was necessary that the whole issue be first considered by an

Empowered Group of Ministers (EGoM) and in that process legal opinion of the Attorney

General can be obtained. Surprisingly, this opinion, which the DoT had sought on its own

volition, was felt to be 'out of context' at the level of the Hon'ble MoC&IT and hence the

benefit of a discussion in the EGoM was also forgone. Thus, such important decisions

seem to have been taken in DoT without the issues being deliberated and discussed at an

inter ministerial forum.(Para 4.3)

In November 2007, the Hon’ble Prime Minister wrote to Hon'ble MoC&IT and expressed

concern that in the backdrop of the inadequate spectrum and the unprecedented number

of applications received for fresh licenses, spectrum pricing through a fair and transparent

method of auction for revision of entry fee, which is currently benchmarked on an old

figure, needs to be reconsidered. This advice of the Hon’ble Prime Minister evoked an

immediate response from the Hon'ble MoC&IT who on the same day replied that the

issue of auction of spectrum was considered by the TRAI and the Telecom Commission

and it was not recommended by them as the existing licence holders had already got

spectrum upto 10 mega hertz per circle without any spectrum charge. Hon'ble MoC&IT

further informed that his Ministry has come to the conclusion that it will be unfair,

discriminatory, arbitrary and capricious to auction spectrum to new applicants as it will

not give them a level playing field. He had thus, justified the allotment of spectrum to a

few new operators in 2008 without reconsidering the old entry fee discovered in 2001

ignoring the advice of the Hon'ble Prime Minister.(Para 4.4)

The TRAI report of August 2007 had recommended 'no cap' on the number of licences in

any service area. Despite this recommendation of TRAI, the DoT issued a Press Release on

24th September 2007 stating that applications for issue of licences would be accepted

only upto 1.10.2007. This action, in effect, conveyed fixation of an artificial cap in the

number of licenses to be awarded. However, in its response (July 2010) to the report

issued to the Ministry (July 2010), the Ministry has stated that it accepted the

recommendation of 'no cap' by the TRAI in October 2007. It seems that the Ministry, by

(iv) Advice of Ministry of Law and Justice were ignored

(v) Hon'ble Prime Minister's suggestions were not followed

(vi) Arbitrary changes by DoT in the cut-off date.

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications vii

issuing the press release in advance in September 2007 had, in effect, circumvented the

recommendation of TRAI by taking an action counter to the recommendation and its

acceptance by DoT in October 2007. To further compound the earlier decision, of

restricting consideration of applications received up to 1.10.2007, the DoT further

advanced this date to restrict issuance of Letters of Intent (LoIs) only to applications

received up to 25.09.2007. This was ostensibly to avoid legal implications in view of the

shortage of spectrum for GSM services.

(Paras 4.1.2, 4.6)

The First Come First Served (FCFS) policy earlier internally adopted in DoT for allocation of

spectrum,was then extended for issue of new UAS licences. Under this policy, all

applications are registered in the Central Registry Section of DoT where date of receipt

and serial numbers are posted on it. Priority of applications is determined based on this

date of receipt in the Central Registry. In a communication dated 2nd November 2007, the

Hon'ble MoC&IT had even confirmed to the Hon'ble Prime Minister that the processing of

applications was to be on the FCFS basis. However, audit found that DoT deviated even

from the FCFS policy in letter and spirit. The applications submitted between March 2006

and 25th September 2007 were issued the LoIs simultaneously on a single day, viz. 10th

January 2008. A notice was issued through a press release giving less than an hour to

collect the same. This decision to issue LoIs simultaneously to all applicants was taken at

the level of the Minister. As per the FCFS policy being followed those who were issued LoIs

were given 15 days to fulfill the conditions. This included submission of a Performance

Bank Guarantee (PBG) and a Financial Bank Guarantee (FBG). By changing the FCFS

criteria, some licensees, who could proactively anticipate such procedural changes were

ready with the Demand Drafts drawn on dates prior to the notification of cut off date by

DoT and could avail the benefit of first right to allocation of spectrum, having jumped the

queue. The entire process followed lacked transparency and objectivity and has eroded

the credibility of DoT.(Para 4.6)

Process followed by the DoT for verification of applications for UAS licences for confirming

their eligibility lacked due diligence, fairness and transparency leading to grant of licences

to applicants who were not eligible. Eighty five out of the 122 licenses issued in 2008 were

found to be issued to Companies which did not satisfy the basic eligibility conditions set by

the DoT and had suppressed facts, disclosed incomplete information and submitted

fictitious documents for getting UAS licenses and thereby access to spectrum.

(Para 4.7.1)

(vii) FCFS Policy was not followed

(viii) Issue of license to ineligible applicants

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunicationsvi

In October 2007 at its own initiative, the DoT requested the Ministry of Law and Justice to

obtain and communicate the opinion of the Attorney General/Solicitor General of India to

enable the DoT to handle an unprecedented rush of applications in a fair and equitable

manner which would be legally tenable. The Ministry of Law, at the level of the Hon'ble

Minister, opined that in view of the importance of the case and the various options which

seem to have emerged, it was necessary that the whole issue be first considered by an

Empowered Group of Ministers (EGoM) and in that process legal opinion of the Attorney

General can be obtained. Surprisingly, this opinion, which the DoT had sought on its own

volition, was felt to be 'out of context' at the level of the Hon'ble MoC&IT and hence the

benefit of a discussion in the EGoM was also forgone. Thus, such important decisions

seem to have been taken in DoT without the issues being deliberated and discussed at an

inter ministerial forum.(Para 4.3)

In November 2007, the Hon’ble Prime Minister wrote to Hon'ble MoC&IT and expressed

concern that in the backdrop of the inadequate spectrum and the unprecedented number

of applications received for fresh licenses, spectrum pricing through a fair and transparent

method of auction for revision of entry fee, which is currently benchmarked on an old

figure, needs to be reconsidered. This advice of the Hon’ble Prime Minister evoked an

immediate response from the Hon'ble MoC&IT who on the same day replied that the

issue of auction of spectrum was considered by the TRAI and the Telecom Commission

and it was not recommended by them as the existing licence holders had already got

spectrum upto 10 mega hertz per circle without any spectrum charge. Hon'ble MoC&IT

further informed that his Ministry has come to the conclusion that it will be unfair,

discriminatory, arbitrary and capricious to auction spectrum to new applicants as it will

not give them a level playing field. He had thus, justified the allotment of spectrum to a

few new operators in 2008 without reconsidering the old entry fee discovered in 2001

ignoring the advice of the Hon'ble Prime Minister.(Para 4.4)

The TRAI report of August 2007 had recommended 'no cap' on the number of licences in

any service area. Despite this recommendation of TRAI, the DoT issued a Press Release on

24th September 2007 stating that applications for issue of licences would be accepted

only upto 1.10.2007. This action, in effect, conveyed fixation of an artificial cap in the

number of licenses to be awarded. However, in its response (July 2010) to the report

issued to the Ministry (July 2010), the Ministry has stated that it accepted the

recommendation of 'no cap' by the TRAI in October 2007. It seems that the Ministry, by

(iv) Advice of Ministry of Law and Justice were ignored

(v) Hon'ble Prime Minister's suggestions were not followed

(vi) Arbitrary changes by DoT in the cut-off date.

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications vii

issuing the press release in advance in September 2007 had, in effect, circumvented the

recommendation of TRAI by taking an action counter to the recommendation and its

acceptance by DoT in October 2007. To further compound the earlier decision, of

restricting consideration of applications received up to 1.10.2007, the DoT further

advanced this date to restrict issuance of Letters of Intent (LoIs) only to applications

received up to 25.09.2007. This was ostensibly to avoid legal implications in view of the

shortage of spectrum for GSM services.

(Paras 4.1.2, 4.6)

The First Come First Served (FCFS) policy earlier internally adopted in DoT for allocation of

spectrum,was then extended for issue of new UAS licences. Under this policy, all

applications are registered in the Central Registry Section of DoT where date of receipt

and serial numbers are posted on it. Priority of applications is determined based on this

date of receipt in the Central Registry. In a communication dated 2nd November 2007, the

Hon'ble MoC&IT had even confirmed to the Hon'ble Prime Minister that the processing of

applications was to be on the FCFS basis. However, audit found that DoT deviated even

from the FCFS policy in letter and spirit. The applications submitted between March 2006

and 25th September 2007 were issued the LoIs simultaneously on a single day, viz. 10th

January 2008. A notice was issued through a press release giving less than an hour to

collect the same. This decision to issue LoIs simultaneously to all applicants was taken at

the level of the Minister. As per the FCFS policy being followed those who were issued LoIs

were given 15 days to fulfill the conditions. This included submission of a Performance

Bank Guarantee (PBG) and a Financial Bank Guarantee (FBG). By changing the FCFS

criteria, some licensees, who could proactively anticipate such procedural changes were

ready with the Demand Drafts drawn on dates prior to the notification of cut off date by

DoT and could avail the benefit of first right to allocation of spectrum, having jumped the

queue. The entire process followed lacked transparency and objectivity and has eroded

the credibility of DoT.(Para 4.6)

Process followed by the DoT for verification of applications for UAS licences for confirming

their eligibility lacked due diligence, fairness and transparency leading to grant of licences

to applicants who were not eligible. Eighty five out of the 122 licenses issued in 2008 were

found to be issued to Companies which did not satisfy the basic eligibility conditions set by

the DoT and had suppressed facts, disclosed incomplete information and submitted

fictitious documents for getting UAS licenses and thereby access to spectrum.

(Para 4.7.1)

(vii) FCFS Policy was not followed

(viii) Issue of license to ineligible applicants

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunicationsviii

Any loss ascertained while attempting to value the 2G spectrum allocated to 122 licencees

in 2008 can only be 'presumptive', given the fact that there are varied determinants like its

scarcity value, the nature of competition, business plans envisaged, number of operators,

growth of sector etc. which, depending upon the market situation, would throw up the

price that it commands at a given point of time. Instead of attempting to come to a specific

value of 2G spectrum which could have been possible only through an efficient market

discovery process, we have looked at the various indicators to assess a possible

(presumptive) value, from the records made available to Audit rather than going for any

mathematical/econometric models.(Para 5.1)

1. On 5th November 2007 through a letter addressed to the Hon'ble Prime Minister, S Tel

limited who was a prospective licencee, having applied for UAS licences in July/

September 2007, had offered to pay a higher price in the shape of additional revenue

share for next ten years. The offer was enhanced by the firm with a stipulation to

further revise it upwards, in case of any counter bid. At the prices offered by the

Company, value of 122 new licenses and 35 Dual Technology licenses after discounting

for the receivables in future years works out to ` 65,909 crores as against ` 12,386

crores actually received.

(Para 5.2)

2. Auction of 3G spectrum was recommended by TRAI in its Report submitted to

Government in September 2006. In its Report of 2010, they have observed that it was

fair to compare 2G with 3G and recommended 3G prices to be adopted as current

price of 2G spectrum in 1800 Mhz band. If these recommendations, which have not so

far been accepted by the Government are taken into account, then the value of 2G

spectrum allotted to the 122 new licensees and 35 Dual Technology licences would be

much higher at about ̀ 1,52,038 crores as against the amount actually received.

(Para 5.3)

3. Many of the new UAS licensees of 2008 have been able to attract substantial amount

of Foreign Direct Investment (FDI). Value of a new company with no experience in the

Telecom sector can primarily be taken as that of the license and access to spectrum.

This would have been the prime consideration for foreign companies while infusing

large amount of capital in the form of equity in these companies shortly after award of

license. Based on this indicator, value of a pan India license works out between

` 7,758 crores and ` 9,100 crores as against ` 1,658 crores priced by DoT. The total

value for 122 new licences and 35 Dual Technology licences would be between

` 58,000 to ̀ 68,000 crores as against the actual revenue of ̀ 12,386 crores realized.

(Para 5.4)

(ix) Presumptive value of spectrum allocated to 122 new UAS licencees and 35 Dual Technology licencees in 2007-08

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications ix

Thus, on the values determined through various indicators, the presumptive value of 2G

spectrum on account of grant of 157 licenses in different circles during 2007-08 would be

in the range of approximately ̀ 58,000 crores to ̀ 1,52,038 crores.

(Para 5.5)

Spectrum was allotted by DoT to the existing operators beyond the contracted limits

without imposing any upfront charge for such allotment. The value of spectrum held by 13

operators for 51 circles based on the 2001 rates worked out to ̀ 2561 crores. Based on the

above indicators, value would be in the range of ` 12,000 crores and ` 37,000 crores.

TRAI's recommendation (2010) for charging this additional quantity of spectrum has not

been accepted by the Government so far.

(Para 4.10, 5.5)

(x) Value of additional spectrum allotted to 13 existing operators beyond contracted quantities

The presumptive loss as per the methods adopted would be as given in the table below:

(xi) Presumptive loss of spectrum allocated to 122 new UAS licensees and 35 Dual Technology licenses in 2007-08

Category

New Licences

Dual Technology

Beyond contracted quantityof 6.2 MHz

Total

38950

14573

13841

67364

102498

37154

36993

176645

40442

15132

14052

69626

33230

12433

12003

57666

S Tel rate

Criteria for working out potential loss to exchequer (value ` in crores)

Rates on the basis of 3G auction

Sale of equity by the new licensees

Unitech Swan

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunicationsviii

Any loss ascertained while attempting to value the 2G spectrum allocated to 122 licencees

in 2008 can only be 'presumptive', given the fact that there are varied determinants like its

scarcity value, the nature of competition, business plans envisaged, number of operators,

growth of sector etc. which, depending upon the market situation, would throw up the

price that it commands at a given point of time. Instead of attempting to come to a specific

value of 2G spectrum which could have been possible only through an efficient market

discovery process, we have looked at the various indicators to assess a possible

(presumptive) value, from the records made available to Audit rather than going for any

mathematical/econometric models.(Para 5.1)

1. On 5th November 2007 through a letter addressed to the Hon'ble Prime Minister, S Tel

limited who was a prospective licencee, having applied for UAS licences in July/

September 2007, had offered to pay a higher price in the shape of additional revenue

share for next ten years. The offer was enhanced by the firm with a stipulation to

further revise it upwards, in case of any counter bid. At the prices offered by the

Company, value of 122 new licenses and 35 Dual Technology licenses after discounting

for the receivables in future years works out to ` 65,909 crores as against ` 12,386

crores actually received.

(Para 5.2)

2. Auction of 3G spectrum was recommended by TRAI in its Report submitted to

Government in September 2006. In its Report of 2010, they have observed that it was

fair to compare 2G with 3G and recommended 3G prices to be adopted as current

price of 2G spectrum in 1800 Mhz band. If these recommendations, which have not so

far been accepted by the Government are taken into account, then the value of 2G

spectrum allotted to the 122 new licensees and 35 Dual Technology licences would be

much higher at about ̀ 1,52,038 crores as against the amount actually received.

(Para 5.3)

3. Many of the new UAS licensees of 2008 have been able to attract substantial amount

of Foreign Direct Investment (FDI). Value of a new company with no experience in the

Telecom sector can primarily be taken as that of the license and access to spectrum.

This would have been the prime consideration for foreign companies while infusing

large amount of capital in the form of equity in these companies shortly after award of

license. Based on this indicator, value of a pan India license works out between

` 7,758 crores and ` 9,100 crores as against ` 1,658 crores priced by DoT. The total

value for 122 new licences and 35 Dual Technology licences would be between

` 58,000 to ̀ 68,000 crores as against the actual revenue of ̀ 12,386 crores realized.

(Para 5.4)

(ix) Presumptive value of spectrum allocated to 122 new UAS licencees and 35 Dual Technology licencees in 2007-08

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications ix

Thus, on the values determined through various indicators, the presumptive value of 2G

spectrum on account of grant of 157 licenses in different circles during 2007-08 would be

in the range of approximately ̀ 58,000 crores to ̀ 1,52,038 crores.

(Para 5.5)

Spectrum was allotted by DoT to the existing operators beyond the contracted limits

without imposing any upfront charge for such allotment. The value of spectrum held by 13

operators for 51 circles based on the 2001 rates worked out to ̀ 2561 crores. Based on the

above indicators, value would be in the range of ` 12,000 crores and ` 37,000 crores.

TRAI's recommendation (2010) for charging this additional quantity of spectrum has not

been accepted by the Government so far.

(Para 4.10, 5.5)

(x) Value of additional spectrum allotted to 13 existing operators beyond contracted quantities

The presumptive loss as per the methods adopted would be as given in the table below:

(xi) Presumptive loss of spectrum allocated to 122 new UAS licensees and 35 Dual Technology licenses in 2007-08

Category

New Licences

Dual Technology


Total

38950

14573

13841

67364

102498

37154

36993

176645

40442

15132

14052

69626

33230

12433

12003

57666

S Tel rate




Unitech Swan

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications 1

Chapter 1

Introduction 1

n the recent times, India has emerged as one of the fastest growing telecom markets in I the world. The Department of Telecommunication (DoT) under the Ministry of

Communications and Information Technology (MoC&IT) was the monopoly agency

providing communication facilities in India till 1994 when for the first time private players

were invited to contribute to the telecom sector by way of investment for providing telecom

services in the country. Since then it has been one of the few sectors in India, which has

witnessed widespread structural and institutional reforms. With 62.13 crore telephone

connections (Fixed lines- 3.70 crore and wireless 58.43 crore) as on March 31, 2010, it is the

second largest network in the world after China. The eleventh plan target of 50 crore

connections by 2010 stood achieved in September 2009 shown in the chart 1.1 below.

Growth in Telecom Sector1.1

Chart - 1.1 Growth of Telecom Network (Wireline and Wireless)

2003

647.60 765.30983.70

1420.90

2058.60

3004.90

4297.20

6212.80

5843.20

369.60379.60394.10407.70402.30414.20400.20410.30

3917.60

2610.80

1650.90

1018.60

359.50228.30

356.10

2004 2005 2006 2007 2008 2009 2010

Y E A R

Nu

mb

er

of P

ho

nes

(in

lakh

s)

Wireline phones

Wireless phones

Total


Chapter 1

Introduction 1

n the recent times, India has emerged as one of the fastest growing telecom markets in I the world. The Department of Telecommunication (DoT) under the Ministry of

Communications and Information Technology (MoC&IT) was the monopoly agency

providing communication facilities in India till 1994 when for the first time private players

were invited to contribute to the telecom sector by way of investment for providing telecom

services in the country. Since then it has been one of the few sectors in India, which has

witnessed widespread structural and institutional reforms. With 62.13 crore telephone

connections (Fixed lines- 3.70 crore and wireless 58.43 crore) as on March 31, 2010, it is the

second largest network in the world after China. The eleventh plan target of 50 crore

connections by 2010 stood achieved in September 2009 shown in the chart 1.1 below.

Growth in Telecom Sector1.1

Chart - 1.1 Growth of Telecom Network (Wireline and Wireless)

2003

647.60 765.30983.70

1420.90

2058.60

3004.90

4297.20

6212.80

5843.20

369.60379.60394.10407.70402.30414.20400.20410.30

3917.60

2610.80

1650.90

1018.60

359.50228.30

356.10

2004 2005 2006 2007 2008 2009 2010

Y E A R

Nu

mb

er

of P

ho

nes

(in

lakh

s)

Wireline phones

Wireless phones

Total

Performance Audit Report on theIssue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications2

* The country is divided into 22 Service Areas. Earlier it consisted of 19 Telecom Circles and 4 Metros for providing Unified Access Services (UAS). Subsequently Chennai was merged with Tamil Nadu service area.

1.2.1 The first National Telecom Policy was announced by the Government in 1994

(NTP-94) with the objectives of providing telephone on demand, provision of world-

class services at reasonable prices and universal availability of basic telecom

services to all villages. NTP-1994 recognized that the required resources for

achieving these targets could not be made available only out of Government sources

and private investment and involvement of the private sector was required to bridge

the large resource gap.

1.2.2 While there were several achievements under the NTP 1994, some of the objectives

could not be met. Acknowledging several changes both at the national and global

scenario in the telecom sector; a New Telecom Policy- NTP-99 was announced by

Government w.e.f. 1st April 1999. Licensing of all telecom services thereafter was to

be under the policy framework of NTP-99, which sought to significantly redefine the

competitive nature of the industry. The new policy lifted the restrictions on the

number of service providers for the Basic Service Providers (BSPs) as well as the

Cellular Mobile Service Providers (CMSPs) making it open for participation by all

bidders who satisfied the conditions of the DoT. The new policy also required all

operators who were under the fixed licence fee regime to migrate to a revenue

sharing regime. In the revenue sharing model, the operators were required to pay a

percentage of their Adjusted Gross Revenue (AGR) as annual license fee and

spectrum usage charge to the Government. The percentage of revenue share

depended on the service area* where they offered their services.

Overview of Policies1.2

Chart - 1.2 Revenue on account of Spectrum charges and Licence Fee

Y E A R

2002-03

0

2000

4000

6000

8000

10000

12000

14000

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

(Rs.

in C

rore

)

640

677 10

40

1996 20

90.3

9

3055

.72

3454

.55

3809

.53

4827

8421

6624

7037

.92 88

55.2

4

9759

.81

9778

.52

6816

5467

9098

8020

9128

.31

1191

0.36

1321

4.39

1358

8.05

7856

Spectrum Charges

Licence Fee

Total


1In January 2008 DoT issued 121 Letters of Intent (LOIs) against which only 120 licenses were issued. Two more

licenses were issued in July 2008.

1.2.3 The Union Cabinet based on the recommendations of Group of Ministers (GoM) on

Telecom matters constituted in September 2003 approved the policy for licensing of

Unified Access Services. The GoM had considered the recommendations submitted

by Telecom Regulatory Authority of India (TRAI) on 27 October 2003. The policy

drew upon NTP-99. Through this approval, Cabinet besides, a number of other

related decisions, charted the course to a Universal Licensing Regime. Guidelines for

issue of licenses under UAS were issued on 11 November 2003 where after licences

were issued only under UAS.

1.2.4 In April 2007, the DoT sought the opinion of the TRAI on some specific points

including that of putting a cap on the number of access service providers in a service

area, as radio frequency spectrum required for wireless services was not sufficient

to meet the increasing demand from UAS Licensees. TRAI recommended (August

2007) that no cap be placed on the number of access service providers in any service 1area. the DoT issued 122 new licences to 17 companies in 2008 and spectrum was

allotted to all operators except for four in Delhi service area (December 2009).

1.2.5 TRAI in August 2007 also recommended that “a licensee using one technology may

be permitted on request, usage of alternative technology and thus allocation of dual

spectrum. However, such a licensee must pay the same amount of fee which has

been paid by the existing licences using the alternative technology or which would

be paid by the new licensee going to use that technology”. 35 licencees were

permitted to use dual spectrum and allocated spectrum in 2007-08.

There were 241 Unified Access Service (UAS), 2 Basic Service (BS) and 38 Cellular

Mobile Telephone Service (CMTS) Licences as on 31 March 2010.


* The country is divided into 22 Service Areas. Earlier it consisted of 19 Telecom Circles and 4 Metros for providing Unified Access Services (UAS). Subsequently Chennai was merged with Tamil Nadu service area.

1.2.1 The first National Telecom Policy was announced by the Government in 1994

(NTP-94) with the objectives of providing telephone on demand, provision of world-

class services at reasonable prices and universal availability of basic telecom

services to all villages. NTP-1994 recognized that the required resources for

achieving these targets could not be made available only out of Government sources

and private investment and involvement of the private sector was required to bridge

the large resource gap.

1.2.2 While there were several achievements under the NTP 1994, some of the objectives

could not be met. Acknowledging several changes both at the national and global

scenario in the telecom sector; a New Telecom Policy- NTP-99 was announced by

Government w.e.f. 1st April 1999. Licensing of all telecom services thereafter was to

be under the policy framework of NTP-99, which sought to significantly redefine the

competitive nature of the industry. The new policy lifted the restrictions on the

number of service providers for the Basic Service Providers (BSPs) as well as the

Cellular Mobile Service Providers (CMSPs) making it open for participation by all

bidders who satisfied the conditions of the DoT. The new policy also required all

operators who were under the fixed licence fee regime to migrate to a revenue

sharing regime. In the revenue sharing model, the operators were required to pay a

percentage of their Adjusted Gross Revenue (AGR) as annual license fee and

spectrum usage charge to the Government. The percentage of revenue share

depended on the service area* where they offered their services.

Overview of Policies1.2

Chart - 1.2 Revenue on account of Spectrum charges and Licence Fee

Y E A R

2002-03

0

2000

4000

6000

8000

10000

12000

14000

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

(Rs.

in C

rore

)

640

677 10

40

1996 20

90.3

9

3055

.72

3454

.55

3809

.53

4827

8421

6624

7037

.92 88

55.2

4

9759

.81

9778

.52

6816

5467

9098

8020

9128

.31

1191

0.36

1321

4.39

1358

8.05

7856

Spectrum Charges

Licence Fee

Total


1In January 2008 DoT issued 121 Letters of Intent (LOIs) against which only 120 licenses were issued. Two more

licenses were issued in July 2008.

1.2.3 The Union Cabinet based on the recommendations of Group of Ministers (GoM) on

Telecom matters constituted in September 2003 approved the policy for licensing of

Unified Access Services. The GoM had considered the recommendations submitted

by Telecom Regulatory Authority of India (TRAI) on 27 October 2003. The policy

drew upon NTP-99. Through this approval, Cabinet besides, a number of other

related decisions, charted the course to a Universal Licensing Regime. Guidelines for

issue of licenses under UAS were issued on 11 November 2003 where after licences

were issued only under UAS.

1.2.4 In April 2007, the DoT sought the opinion of the TRAI on some specific points

including that of putting a cap on the number of access service providers in a service

area, as radio frequency spectrum required for wireless services was not sufficient

to meet the increasing demand from UAS Licensees. TRAI recommended (August

2007) that no cap be placed on the number of access service providers in any service 1area. the DoT issued 122 new licences to 17 companies in 2008 and spectrum was

allotted to all operators except for four in Delhi service area (December 2009).

1.2.5 TRAI in August 2007 also recommended that “a licensee using one technology may

be permitted on request, usage of alternative technology and thus allocation of dual

spectrum. However, such a licensee must pay the same amount of fee which has

been paid by the existing licences using the alternative technology or which would

be paid by the new licensee going to use that technology”. 35 licencees were

permitted to use dual spectrum and allocated spectrum in 2007-08.

There were 241 Unified Access Service (UAS), 2 Basic Service (BS) and 38 Cellular

Mobile Telephone Service (CMTS) Licences as on 31 March 2010.


BOX-1

Policy Stage

NTP 1994

NTP 1999

UAS 2003

Introduction of

dual technology

Methodology for Entry of Operators Fixed Fee Regime

License Fee was pre-determined

and bids were called on selected

parameters.

- One-time entry fee before

signing the license agreement.

- A fixed percentage of Adjusted

Gross Revenue (AGR) as

annual license fee.

- A fixed percentage of

Adjusted Gross Revenue (AGR)

of mobile services as annual

spectrum charge.


signing the licence agreement.



annual licence fee.




spectrum charge.

- One-time entry fee equivalent

to migration fee for UAS

based on 2001 entry fee of

CMSPs was charged for

allowing DT in 2007.

- Revenue sharing as for UAS

2003.

n

n

n

In first phase (Nov-94), two CMTS licences

were awarded in four Metro cities on beauty

parade basis.

In second phase (Dec-95), two CMTS

licences were awarded in 18 telecom circles

through a process of competitive bidding.

Six companies were awarded Basic service

licences through bidding process.

*

n

n

n

n

n

All existing BSOs and CMSPs were required

to migrate to the new regime.

Number and timing of new licenses was to

be based on TRAI's recommendations.

BSNL and MTNL became the third CMTS

operator in 2000.

Seventeen new CMTS licences as fourth

cellular mobile operators in 2001 through a

multi-stage bidding process.

Twenty Five new Basic service licences in

2001 based on eligibility as per the

guidelines issued on January 2001.

n

n

n

All the existing BSOs and CMPSs were given

option to migrate to UASL regime; by BSOs

paying the difference of entry fee paid by

them that as paid by the fourth CMTS

operator in 2001and CMTS operator at nil

entry fee.

51 new UAS licences were awarded

between 2004 to March 2006 at the entry

fee determined in 2001.

122 new UAS licences awarded in 2008, also

at the same entry fee of 2001.

n Approvals were issued in 2007-08 for dual

technology (for using both CDMA and GSM)

in 35 service areas at the entry fee

equivalent to the migration fee fixed in

2001.

Methodology for Entry and Fee Structure in Various Policy Regimes1.3

* Beauty parade fixes the price of spectrum to ensure optimum utilization by awarding it to the user(s) who score the highest against a group of pre set criteria (such as rural coverage or the fulfillment of roll out obligations).


Role of Telecom Regulatory Authority of India (TRAI)1.4

The TRAI was set up in March 1997 and its mandate included making recommendations on

the following matters:

TRAI also had to notify the rates at which telecommunication services within India and

outside were to be provided under the TRAI Act, through Gazette notifications, from time to

time. NTP-99 stipulated that the Government will invariably seek TRAI's recommendations

on the number and timing of new licences before taking decision on issue of new licenses.

The original Act of 1997 under which it was set up was amended by the TRAI (Amendment)

Act 2000. The new Act provided for the establishment of two separate bodies i.e. the

Telecom Dispute Settlement and Appellate Tribunal (TDSAT) for dispute settlements

between the licensor and licensees, between two or more service providers and between

service providers and consumers and TRAI for regulatory functions. Thus, TRAI as a regulator

has only an advisory role in the policy matters.

n

n terms and conditions of the licences to be given to service providers and

n efficient management of the available spectrum.

need and timing for introduction of new service providers.

The work relating to formulation of policy, issue of licences for various telecom services and

spectrum allocation are under the overall control of Ministry of Communications & IT.

Secretary, DoT, reports to the Minister (Communications and IT) and is assisted by the

Member (Finance), the Member (Technology), Member (Services), Member (Production)

and Wireless Advisor.

The Secretary, DoT, is also the Chairman of the Telecom Commission which is a high powered

commission, established in 1989, consisting of four full time members (Production,

Services, Technology and Finance) and four part-time members (Secretaries of the

Ministries of Finance, Industrial Policy and Promotion, Information Technology and Planning

Commission). The major functions of the Telecom Commission include policy formulation,

review of performance, licensing, wireless spectrum management, administrative

monitoring of PSUs, research and development, standardization/ validation of equipment

and International Relations.

Organisational Arrangement 1.5


BOX-1

Policy Stage

NTP 1994

NTP 1999

UAS 2003

Introduction of

dual technology

Methodology for Entry of Operators Fixed Fee Regime

License Fee was pre-determined

and bids were called on selected

parameters.


signing the license agreement.



annual license fee.




spectrum charge.


signing the licence agreement.



annual licence fee.




spectrum charge.

- One-time entry fee equivalent

to migration fee for UAS

based on 2001 entry fee of

CMSPs was charged for

allowing DT in 2007.

- Revenue sharing as for UAS

2003.

n

n

n

In first phase (Nov-94), two CMTS licences

were awarded in four Metro cities on beauty

parade basis.

In second phase (Dec-95), two CMTS

licences were awarded in 18 telecom circles

through a process of competitive bidding.

Six companies were awarded Basic service

licences through bidding process.

*

n

n

n

n

n

All existing BSOs and CMSPs were required

to migrate to the new regime.

Number and timing of new licenses was to

be based on TRAI's recommendations.

BSNL and MTNL became the third CMTS

operator in 2000.

Seventeen new CMTS licences as fourth

cellular mobile operators in 2001 through a

multi-stage bidding process.

Twenty Five new Basic service licences in

2001 based on eligibility as per the

guidelines issued on January 2001.

n

n

n

All the existing BSOs and CMPSs were given

option to migrate to UASL regime; by BSOs

paying the difference of entry fee paid by

them that as paid by the fourth CMTS

operator in 2001and CMTS operator at nil

entry fee.

51 new UAS licences were awarded

between 2004 to March 2006 at the entry

fee determined in 2001.

122 new UAS licences awarded in 2008, also

at the same entry fee of 2001.

n Approvals were issued in 2007-08 for dual

technology (for using both CDMA and GSM)

in 35 service areas at the entry fee

equivalent to the migration fee fixed in

2001.

Methodology for Entry and Fee Structure in Various Policy Regimes1.3

* Beauty parade fixes the price of spectrum to ensure optimum utilization by awarding it to the user(s) who score the highest against a group of pre set criteria (such as rural coverage or the fulfillment of roll out obligations).


Role of Telecom Regulatory Authority of India (TRAI)1.4

The TRAI was set up in March 1997 and its mandate included making recommendations on

the following matters:

TRAI also had to notify the rates at which telecommunication services within India and

outside were to be provided under the TRAI Act, through Gazette notifications, from time to

time. NTP-99 stipulated that the Government will invariably seek TRAI's recommendations

on the number and timing of new licences before taking decision on issue of new licenses.

The original Act of 1997 under which it was set up was amended by the TRAI (Amendment)

Act 2000. The new Act provided for the establishment of two separate bodies i.e. the

Telecom Dispute Settlement and Appellate Tribunal (TDSAT) for dispute settlements

between the licensor and licensees, between two or more service providers and between

service providers and consumers and TRAI for regulatory functions. Thus, TRAI as a regulator

has only an advisory role in the policy matters.

n

n terms and conditions of the licences to be given to service providers and

n efficient management of the available spectrum.

need and timing for introduction of new service providers.

The work relating to formulation of policy, issue of licences for various telecom services and

spectrum allocation are under the overall control of Ministry of Communications & IT.

Secretary, DoT, reports to the Minister (Communications and IT) and is assisted by the

Member (Finance), the Member (Technology), Member (Services), Member (Production)

and Wireless Advisor.

The Secretary, DoT, is also the Chairman of the Telecom Commission which is a high powered

commission, established in 1989, consisting of four full time members (Production,

Services, Technology and Finance) and four part-time members (Secretaries of the

Ministries of Finance, Industrial Policy and Promotion, Information Technology and Planning

Commission). The major functions of the Telecom Commission include policy formulation,

review of performance, licensing, wireless spectrum management, administrative

monitoring of PSUs, research and development, standardization/ validation of equipment

and International Relations.

Organisational Arrangement 1.5


Operators intending to provide telecommunication services have to obtain a licence from the DoT. The guidelines for issuing new licences for various Telecom Services as approved (December 2005) by the DoT stipulated that an applicant would have to apply for a licence along with the requisite processing fees. Applicants meeting the eligibility criteria prescribed by the DoT would be issued a Letter of Intent (LoI). Thereafter the applicant was required to deposit the prescribed entry fees, submit the requisite Bank guarantees and other necessary documents before the grant of licence.

Radio frequency spectrum, i.e., the entire range of wavelengths of electromagnetic radiation, is a finite global natural resource with a high economic value, due to its heavy demand in the telecommunications sector. The word 'Spectrum' basically refers to the collection of various types of electromagnetic radiations of different wavelengths. Frequencies are allocated by the International Telecommunication Union (ITU) at "World Radio Communication Conferences". Allocations are made on a regional basis and are made for different services. Allocation of spectrum in ITU Radio Regulations exists from 9 KHz to 1000 GHz. In India, the radio frequencies are confined between 9 KHz and 400 GHz.

Some of the important and typical characteristics of the radio frequency spectrum are that:

n

boundaries as it is spread over a large terrestrial area.radio frequency spectrum does not respect international geographical

Minister of Communications & IT

Full time Members Part Time Members

Secretary(Planning Commission)

Secretary(Finance)

Secretary(Information Technology)

Member(Production)

Member(Technology)

Member(Services)

AdvisorAdvisor

Advisor

Member(Finance)

Secretary(Industrial Policy &

Promotion)

Minister of State for Communications & IT

Secretary, DoT & Chairman, Telecom Commission

DDG (AS)

WirelessAdvisor

Issue of Licences1.6

Spectrum Allocation 1.7

Radio Frequency Spectrum is the entire range of wavelengths of electromagnetic radiation which is used as carrier of wireless transmission and thus a basic requirement for providing wireless services. It is a finite but non-consumable global natural resource and commands high economic value in the telecommunication sector.


Assignment of radio frequencies is governed by international treaties formulated under the aegis of the ITU. India falls in the ITU Region III.

In India, Mobile services which use GSM technology work in the frequency bands of 900 & 1800 MHz and those in CDMA technology work in the 800 MHz band. 800, 900 and 1800 MHz bands were earlier allotted to the defence services for their mobile communication usage. Presently, 25 MHz spectrum in 900 MHz band (890 – 915 / 935 – 960 MHz) and 75 MHz in the 1800 MHz band (1710 – 1785 / 1805 – 1880 MHz) is earmarked for GSM services.

For CDMA services, 20 MHz spectrum in the 800 MHz band (824 – 844 / 869 – 889 MHz) is available. Spectrum for the roll out of 3G services (voice, data and video) were allotted through e-auction in the 2.1 GHz (1920 – 1980 / 2110 – 2170 MHz) band. All the above bands were historically allotted to the Defence sector for their mobile and point to point communication needs in India. Therefore, their cooperation was also required to make them available for commercial use. To facilitate the same, Government of India (GoI) has allocated funds from time to time to provide optical fibre cables for use by the Defence Sector.

n

requires the application of complex engineering tools to ensure interference free operation of various wireless networks.

n unlike other natural resources, radio frequency spectrum is not consumed upon its usage. It is also liable to be wasted if it is not used optimally and efficiently.

use of radio frequency spectrum is susceptible to overlapping interference and

Spectrum for mobile services as per NFAP 2002Spectrum for mobile services as per NFAP 2002

800 MHz Band - only for CDMA

900 MHz Band - only for GSM

1800 MHz Band - GSM and CDMA

2 GHz Band - 3G Services

824

890

1710

1920

844

915

1785

1980

869

935

1805

2110

889

960

1880

2170

1.7.1 The Wireless Planning & Coordination (WPC) Wing in the Department of Telecommunications deals with the policy of spectrum management, wireless licensing and frequency assignments. The spectrum allocation policy is contained in the National frequency allocation plan (NFAP) which is based on the International Radio Regulations. The NFAP (1981) and its subsequent revisions in consultation with the national users through the forum of Standing Advisory Committee on Radio Frequency Allocation (SACFA) provides the basis for assignment of frequency.


Operators intending to provide telecommunication services have to obtain a licence from the DoT. The guidelines for issuing new licences for various Telecom Services as approved (December 2005) by the DoT stipulated that an applicant would have to apply for a licence along with the requisite processing fees. Applicants meeting the eligibility criteria prescribed by the DoT would be issued a Letter of Intent (LoI). Thereafter the applicant was required to deposit the prescribed entry fees, submit the requisite Bank guarantees and other necessary documents before the grant of licence.

Radio frequency spectrum, i.e., the entire range of wavelengths of electromagnetic radiation, is a finite global natural resource with a high economic value, due to its heavy demand in the telecommunications sector. The word 'Spectrum' basically refers to the collection of various types of electromagnetic radiations of different wavelengths. Frequencies are allocated by the International Telecommunication Union (ITU) at "World Radio Communication Conferences". Allocations are made on a regional basis and are made for different services. Allocation of spectrum in ITU Radio Regulations exists from 9 KHz to 1000 GHz. In India, the radio frequencies are confined between 9 KHz and 400 GHz.

Some of the important and typical characteristics of the radio frequency spectrum are that:

n

boundaries as it is spread over a large terrestrial area.radio frequency spectrum does not respect international geographical

Minister of Communications & IT

Full time Members Part Time Members

Secretary(Planning Commission)

Secretary(Finance)

Secretary(Information Technology)

Member(Production)

Member(Technology)

Member(Services)

AdvisorAdvisor

Advisor

Member(Finance)

Secretary(Industrial Policy &

Promotion)

Minister of State for Communications & IT

Secretary, DoT & Chairman, Telecom Commission

DDG (AS)

WirelessAdvisor

Issue of Licences1.6

Spectrum Allocation 1.7

Radio Frequency Spectrum is the entire range of wavelengths of electromagnetic radiation which is used as carrier of wireless transmission and thus a basic requirement for providing wireless services. It is a finite but non-consumable global natural resource and commands high economic value in the telecommunication sector.


Assignment of radio frequencies is governed by international treaties formulated under the aegis of the ITU. India falls in the ITU Region III.

In India, Mobile services which use GSM technology work in the frequency bands of 900 & 1800 MHz and those in CDMA technology work in the 800 MHz band. 800, 900 and 1800 MHz bands were earlier allotted to the defence services for their mobile communication usage. Presently, 25 MHz spectrum in 900 MHz band (890 – 915 / 935 – 960 MHz) and 75 MHz in the 1800 MHz band (1710 – 1785 / 1805 – 1880 MHz) is earmarked for GSM services.

For CDMA services, 20 MHz spectrum in the 800 MHz band (824 – 844 / 869 – 889 MHz) is available. Spectrum for the roll out of 3G services (voice, data and video) were allotted through e-auction in the 2.1 GHz (1920 – 1980 / 2110 – 2170 MHz) band. All the above bands were historically allotted to the Defence sector for their mobile and point to point communication needs in India. Therefore, their cooperation was also required to make them available for commercial use. To facilitate the same, Government of India (GoI) has allocated funds from time to time to provide optical fibre cables for use by the Defence Sector.

n

requires the application of complex engineering tools to ensure interference free operation of various wireless networks.

n unlike other natural resources, radio frequency spectrum is not consumed upon its usage. It is also liable to be wasted if it is not used optimally and efficiently.

use of radio frequency spectrum is susceptible to overlapping interference and

Spectrum for mobile services as per NFAP 2002Spectrum for mobile services as per NFAP 2002

800 MHz Band - only for CDMA

900 MHz Band - only for GSM

1800 MHz Band - GSM and CDMA

2 GHz Band - 3G Services

824

890

1710

1920

844

915

1785

1980

869

935

1805

2110

889

960

1880

2170

1.7.1 The Wireless Planning & Coordination (WPC) Wing in the Department of Telecommunications deals with the policy of spectrum management, wireless licensing and frequency assignments. The spectrum allocation policy is contained in the National frequency allocation plan (NFAP) which is based on the International Radio Regulations. The NFAP (1981) and its subsequent revisions in consultation with the national users through the forum of Standing Advisory Committee on Radio Frequency Allocation (SACFA) provides the basis for assignment of frequency.


Wireless licence is an independent licence and therefore any UAS licence holder intending to offer mobile services has to obtain a separate wireless licence from WPC wing.

Allocation of contractual and additional spectrum

Detail of licences Allocation of contractual spectrum Allocation of additional spectrum

As per DoT's order dated 22nd September 2001 bandwidth up to 6.2 MHz+6.2 MHz instead of 4.4 MHz+4.4 MHz subject to availability and justification effective from 1.8.99.

As per DoT's order dated 1.2.2002, 1.8 MHz+1.8 MHz spectrum beyond 6.2 MHz (total 8 MHz+8 MHz) would be assigned to an operator on reaching a subscriber base of 5 lakh or more in a service area.

Further, allocation of spectrum up to 10 MHz+10 MHz on reaching prescribed subscriber base could also be considered subject to availability.

In 2006, criteria for allotment of additional spectrum in GSM beyond initial spectrum (4.4 MHz) was revised which was based on the minimum subscriber base ranging from 2 lakh subscribers for 6.2 MHz to 26 lakh subscribers for maximum of 15 MHz 2G spectrum depending upon the category (A/B/C) of the circle or service area.

In January 2008, criteria for allotment of additional spectrum in GSM band beyond initial spectrum (4.4 MHz) was again revised needing a minimum subscriber base ranging from 15 lakh subscribers for 6.2 MHz to 116 lakh subscribers for maximum of 14.2 MHz 2G spectrum depending upon the category (A/B/C) of the circle or service area.

A cumulative maximum of up to 4.4 MHz +4.4 MHz in the 900 MHz band based on appropriate justification.


A cumulative maximum of up to 4.4 MHz +4.4 MHz in the 1800 MHz band. Based usage, justification and availability, additional spectrum up to 1.8 MHz+1.8 MHz making a total of 6.2 MHz+6.2 MHz.

Initially a cumulative maximum of up to 4.4 MHz + 4.4 MHz in TDMA/GSM based systems or a maximum of 2.5 MHz + 2.5 MHz in CDMA based systems, on case by case basis subject to availability.

The Licensee operating wireless services will continue to provide such services in already allocated/contracted spectrum.


Additional spectrum allowed based on optimal utilisation but not more than 5+5 MHz in respect of CDMA or 6.2+6.2 MHz in respect of TDMA/GSM.

Initially a cumulative maximum of up to 4.4 MHz + 4.4 MHz in TDMA/GSM based systems and a maximum of 2.5 MHz + 2.5 MHz in CDMA based systems, on case by case basis subject to availability. Additional spectrum allowed based on optimal utilisation but not more than 5+5 MHz in respect of CDMA or 6.2+6.2 MHz in respect of TDMA/GSM.

CMTS licences for first and second Operators (1994-1995)

CMTS licences for third Operators (1997-98)

CMTS licences for fourth operators (2001)


New UAS Licences granted during November 2003 to March 2007

UAS licences using dual technology (2008)

BOX-2


Chapter 2

Audit Approach 2

he audit was conducted during January 2010 to September 2010 covering the period T from 2003-04 to 2009-10. The audit covered the implementation of policy for Unified

Access Licensing Regime and allocation procedure for 2G spectrum to new as well as existing

operators under the UAS. The audit was conducted on the basis of records/information to

the extent made available by the DoT, and the related files of the DoT seized by the CBI in

October 2009 made available to Audit. The relevant files produced by the Ministry of

Finance (MoF) were also examined before finalising the audit comments. Audit also

accessed public documents available on the website of the Ministry of Corporate Affairs to

confirm the compliance of licensee companies to the conditions of UASL Guidelines and the

provisions of the Companies Act. The Report takes into account, the replies by the DoT and

the MoF in response to the audit observations communicated to them in July 2010 and

September 2010. As per the Performance Audit guidelines, Entry and Exit Conferences

were held on 23 December 2009 and 20 May 2010 respectively. The DoT sought a further

meeting with Audit to discuss the draft audit Report. The meeting was held on 4 October

2010. This Report takes into account the discussions between audit team led by the Deputy

Comptroller and Auditor General and the DoT team led by Advisor (Finance).

Audit was taken up with the objectives of ascertaining as to;

n Whether the policy for issue of licence under the Unified Access Services (UAS) was

implemented efficiently;

n Whether the UAS licenses were issued and radio frequency spectrum was allocated

in a fair, transparent and efficient manner and

n Whether the potential for revenue generation to Government was optimally

managed.


Audit Objectives

2.1

2.2


Wireless licence is an independent licence and therefore any UAS licence holder intending to offer mobile services has to obtain a separate wireless licence from WPC wing.

Allocation of contractual and additional spectrum

Detail of licences Allocation of contractual spectrum Allocation of additional spectrum

As per DoT's order dated 22nd September 2001 bandwidth up to 6.2 MHz+6.2 MHz instead of 4.4 MHz+4.4 MHz subject to availability and justification effective from 1.8.99.

As per DoT's order dated 1.2.2002, 1.8 MHz+1.8 MHz spectrum beyond 6.2 MHz (total 8 MHz+8 MHz) would be assigned to an operator on reaching a subscriber base of 5 lakh or more in a service area.

Further, allocation of spectrum up to 10 MHz+10 MHz on reaching prescribed subscriber base could also be considered subject to availability.

In 2006, criteria for allotment of additional spectrum in GSM beyond initial spectrum (4.4 MHz) was revised which was based on the minimum subscriber base ranging from 2 lakh subscribers for 6.2 MHz to 26 lakh subscribers for maximum of 15 MHz 2G spectrum depending upon the category (A/B/C) of the circle or service area.

In January 2008, criteria for allotment of additional spectrum in GSM band beyond initial spectrum (4.4 MHz) was again revised needing a minimum subscriber base ranging from 15 lakh subscribers for 6.2 MHz to 116 lakh subscribers for maximum of 14.2 MHz 2G spectrum depending upon the category (A/B/C) of the circle or service area.



A cumulative maximum of up to 4.4 MHz +4.4 MHz in the 1800 MHz band. Based usage, justification and availability, additional spectrum up to 1.8 MHz+1.8 MHz making a total of 6.2 MHz+6.2 MHz.


The Licensee operating wireless services will continue to provide such services in already allocated/contracted spectrum.


Additional spectrum allowed based on optimal utilisation but not more than 5+5 MHz in respect of CDMA or 6.2+6.2 MHz in respect of TDMA/GSM.

Initially a cumulative maximum of up to 4.4 MHz + 4.4 MHz in TDMA/GSM based systems and a maximum of 2.5 MHz + 2.5 MHz in CDMA based systems, on case by case basis subject to availability. Additional spectrum allowed based on optimal utilisation but not more than 5+5 MHz in respect of CDMA or 6.2+6.2 MHz in respect of TDMA/GSM.

CMTS licences for first and second Operators (1994-1995)

CMTS licences for third Operators (1997-98)



New UAS Licences granted during November 2003 to March 2007

UAS licences using dual technology (2008)

BOX-2


Chapter 2

Audit Approach 2

he audit was conducted during January 2010 to September 2010 covering the period T from 2003-04 to 2009-10. The audit covered the implementation of policy for Unified

Access Licensing Regime and allocation procedure for 2G spectrum to new as well as existing

operators under the UAS. The audit was conducted on the basis of records/information to

the extent made available by the DoT, and the related files of the DoT seized by the CBI in

October 2009 made available to Audit. The relevant files produced by the Ministry of

Finance (MoF) were also examined before finalising the audit comments. Audit also

accessed public documents available on the website of the Ministry of Corporate Affairs to

confirm the compliance of licensee companies to the conditions of UASL Guidelines and the

provisions of the Companies Act. The Report takes into account, the replies by the DoT and

the MoF in response to the audit observations communicated to them in July 2010 and

September 2010. As per the Performance Audit guidelines, Entry and Exit Conferences

were held on 23 December 2009 and 20 May 2010 respectively. The DoT sought a further

meeting with Audit to discuss the draft audit Report. The meeting was held on 4 October

2010. This Report takes into account the discussions between audit team led by the Deputy

Comptroller and Auditor General and the DoT team led by Advisor (Finance).

Audit was taken up with the objectives of ascertaining as to;

n Whether the policy for issue of licence under the Unified Access Services (UAS) was

implemented efficiently;

n Whether the UAS licenses were issued and radio frequency spectrum was allocated

in a fair, transparent and efficient manner and

n Whether the potential for revenue generation to Government was optimally

managed.


Audit Objectives

2.1

2.2


The audit findings have been organised in three chapters for convenience of understanding

n Chapter 3 includes the issues related to the implementation of UAS policy;

n Chapter 4 deals with procedures adopted by the DoT for issue of licences and

allocation of spectrum;

n Chapter 5 aims at assessing the financial impact of various deficiencies brought out

in Chapter 3 and 4.

We place on record our sincere appreciation for the cooperation of the Department of

Telecommunications, Ministry of Finance and the Central Bureau of Investigation in

facilitating our audit.

Organisation of Audit findings2.3

Acknowledgement2.4


Chapter 3

Implementation of Unified Licencing Regime

3

n October 2003 TRAI submitted its recommendations on Unified Licensing regime which I envisaged total elimination of service based licensing. Unified Licence was an approach

towards convergence of access media. Full implementation of the new regime was to be

completed in two phases. The Union Cabinet approved the TRAI report in October 2003.

Phase I was the first step of migration of existing licensees to the Unified Access Licensing

Regime. This was to be followed by a second phase of a fully Unified Licensing /Authorisation

Regime having all telecom services under one licence. This was for grant of licences to new

operators. However, the benefits of Phase I were extended to new operators. Ministry

replied that TRAI had submitted two more recommendations one on Unified Licensing

(January 2005) and another on Spectrum Related issues (May 2005). Though Unified

licensing was the first step towards convergence, it was not implemented since the

Convergence Bill lapsed in Parliament. Thus the ultimate objective of Unified Licensing did

not materialise. DoT however, as explained earlier did not revisit the Unified licensing

regime but implemented it for new licensees also.

3.1.1 TRAI, in its report on Unified Licensing accepted by Government in October 2003,

had recommended that Unified Licence Regime should aim at automatic

licensing/authorisation for telecom services subject to notification to Regulatory

Authority and compliance with published guidelines by operator thereby removing

all barriers for growth in the sector. The underlying principle was to allow licence at

nominal entry fee and price the spectrum separately, it being a scarce public

resource. TRAI had further observed that “

”.

3.1.2 Unified Licensing/Authorisation being the main objective, TRAI had recommended

a two-phase implementation. Recognizing that primary objective of growth in tele-

density depended on securing access network at low cost, in the first phase,

unification of access services at the Circle level was recommended whereby the

service providers of new Unified Access Licensing Regime would be able to offer

basic and/or cellular services using any technology (GSM or CDMA). The second

phase was to be soon followed by defining the guidelines and rules for fully Unified

Licence/Authorisation Regime.

spectrum was to be distributed by a

mechanism that it is allocated optimally to the most efficient user

Gaps in implementation of UAS regime3.1


The audit findings have been organised in three chapters for convenience of understanding

n Chapter 3 includes the issues related to the implementation of UAS policy;

n Chapter 4 deals with procedures adopted by the DoT for issue of licences and

allocation of spectrum;

n Chapter 5 aims at assessing the financial impact of various deficiencies brought out

in Chapter 3 and 4.

We place on record our sincere appreciation for the cooperation of the Department of

Telecommunications, Ministry of Finance and the Central Bureau of Investigation in

facilitating our audit.

Organisation of Audit findings2.3

Acknowledgement2.4


Chapter 3

Implementation of Unified Licencing Regime

3

n October 2003 TRAI submitted its recommendations on Unified Licensing regime which I envisaged total elimination of service based licensing. Unified Licence was an approach

towards convergence of access media. Full implementation of the new regime was to be

completed in two phases. The Union Cabinet approved the TRAI report in October 2003.

Phase I was the first step of migration of existing licensees to the Unified Access Licensing

Regime. This was to be followed by a second phase of a fully Unified Licensing /Authorisation

Regime having all telecom services under one licence. This was for grant of licences to new

operators. However, the benefits of Phase I were extended to new operators. Ministry

replied that TRAI had submitted two more recommendations one on Unified Licensing

(January 2005) and another on Spectrum Related issues (May 2005). Though Unified

licensing was the first step towards convergence, it was not implemented since the

Convergence Bill lapsed in Parliament. Thus the ultimate objective of Unified Licensing did

not materialise. DoT however, as explained earlier did not revisit the Unified licensing

regime but implemented it for new licensees also.

3.1.1 TRAI, in its report on Unified Licensing accepted by Government in October 2003,

had recommended that Unified Licence Regime should aim at automatic

licensing/authorisation for telecom services subject to notification to Regulatory

Authority and compliance with published guidelines by operator thereby removing

all barriers for growth in the sector. The underlying principle was to allow licence at

nominal entry fee and price the spectrum separately, it being a scarce public

resource. TRAI had further observed that “

”.

3.1.2 Unified Licensing/Authorisation being the main objective, TRAI had recommended

a two-phase implementation. Recognizing that primary objective of growth in tele-

density depended on securing access network at low cost, in the first phase,

unification of access services at the Circle level was recommended whereby the

service providers of new Unified Access Licensing Regime would be able to offer

basic and/or cellular services using any technology (GSM or CDMA). The second

phase was to be soon followed by defining the guidelines and rules for fully Unified

Licence/Authorisation Regime.

spectrum was to be distributed by a

mechanism that it is allocated optimally to the most efficient user

Gaps in implementation of UAS regime3.1


new licensees under UAS, as entry of new operators had not been recommended by

TRAI in the first phase of UAS which was intended only for migration of existing BSOs

and CMSPs. Thus, the first phase of six months was meant for migration of existing

operators. TRAI had recommended new operators only in the fully Unified Licensing

Regime. TRAI had also suggested that

(Para 7.37).

TRAI in their same Report submitted to Government had recorded in para 7.39 that

TRAI also recommended that the

guidelines for Unified licensing should include nominal entry fee, USO etc.

Thus, the stipulation of the DoT to benchmark entry fee in respect of new licenses

also at the same level which was allowed for migration of existing BSOs was not

consistent with the recommendations of TRAI (2003). This issue was neither

deliberated by the TRAI in its recommendations (2003) nor at the Telecom

Commission level nor by the GoM on Telecom matters constituted in September

2003. The Cabinet also did not give any directions on the issue.

3.1.5 One of the major objectives of movement towards Unified licensing regime, of

which first step was migration of existing licensees, was to ultimately de-link

spectrum from licence and encourage its efficient use by rational allocation

procedure and pricing. Under the fully unified licensing regime it was envisaged that

the licence fee would be nominal allowing the operator to provide different telecom

services with a separate procedure /regulation for allotting spectrum for which TRAI

had yet to give its recommendations. TRAI's recommendations in this regard have

not yet been implemented by the DoT, which also meant that an important and

crucial objective of 2003 policy remained unachieved.

3.1.6 The Ministry justified the non revision of entry fee on the ground that the entry fee

recommended by TRAI in August 2003 was not only for migration of existing

operators but also for new prospective UASL operators as well and the

recommendations were approved by the Cabinet on 31.10.2003. Further, the Union

Cabinet had authorised DoT to finalise the details of implementation with the

approval of Hon'ble MoC&IT and hence the guidelines were issued in November

2003. The Ministry also stated that their action was also consistent with the

clarification given by the then Chairman TRAI (November 2003). It was also stated

that TRAI submitted two recommendations on fully Unified Licencing regime in

2005 but could not be implemented since the Convergence Bill lapsed in Parliament.

“taking cognizance of spectrum availability,

TRAI is in favour of introducing more competition. However, we feel that in lieu of

more cellular operators it would be more appropriate to have competition in the

Unified Licensing framework which will be initiated after 6 months”

“the induction of additional mobile service providers in various service areas can

be considered if there is adequate availability of spectrum. As the existing players

have to improve the efficiency of utilisation of spectrum and if Government

ensures availability of additional spectrum then in the existing licensing regime,

they may introduce additional players through a multi-stage bidding process as

was followed for fourth cellular operator”.


3.1.3 Based on the recommendations of Group of Ministers which agreed with the

principles laid down by TRAI in its Report, Cabinet (31 October 2003) approved the

proposal for charting the course for Universal Licensing Regime in the following

manner:-

In pursuance to the Cabinet's approval, the DoT issued the guidelines on UAS

Licencing (11 November 2003), for moving towards UASL regime by giving the

option to all existing BSOs and CMSPs to migrate to UASL regime. The guidelines

also included a condition that “All applications for new Access Services Licence shall

be in the category of Unified Access Services Licence.” There was ambiguity

regarding entry fee to be charged from the new licensees as TRAI had not given any

recommendation regarding introduction of new operators in the first phase of UASL

regime. Secretary, DoT, spoke to the Chairman, TRAI who clarified

(14 November 2003) that entry fee of the new unified licensee would be the entry thfee of 4 Cellular Operator and in service areas where there is no fourth operator,

the entry fee of existing BSO fixed by the Government (based on TRAI

recommendations). DoT decided to receive all applications under UAS without

revision of the spectrum allocation procedures/revision of entry fee, which

automatically lifted the restriction on the number of operators in the UAS regime.

3.1.4 TRAI's Recommendations of 2003 not followed in spirit

In its recommendation, TRAI had considered three alternatives for migration of

existing operators in para 7.16 to 7.18 of their Report submitted to Government on

27 October 2003, including that of bidding by the existing and new prospective

operators, but did not favour it on the grounds of likely delay in implementation of

UAS regime. TRAI recommended a third option in para 7.18 of its Report which

suggested migration of existing BSPs by charging entry fee determined through a

bidding process in 2001 for the fourth cellular operator and no entry fee from the

existing CMSPs. There was no mention regarding entry fee to be charged from the

n A two-stage process; the Unified Access Regime for basic and cellular operators

allowing a migration path to existing BSPs and CMSPs in the first phase to be

implemented immediately followed by a second phase of a fully Unified

Licensing/Authorisation Regime within six months, bringing all telecom services

under one licence, after a process of detailed consultation by TRAI;

n Fee paid by the fourth cellular operator to be used as benchmark for migration

of BSOs to the new access regime and no fee to be paid by the existing CMSPs for

migrating to new regime;

n The DoT to be authorised to finalise details of implementation of UAS and the

fully Unified Licence Regime with the approval of the Hon'ble Minister of

Communication & Information Technology (MoC&IT) based on the

recommendations of TRAI.


new licensees under UAS, as entry of new operators had not been recommended by

TRAI in the first phase of UAS which was intended only for migration of existing BSOs

and CMSPs. Thus, the first phase of six months was meant for migration of existing

operators. TRAI had recommended new operators only in the fully Unified Licensing

Regime. TRAI had also suggested that

(Para 7.37).

TRAI in their same Report submitted to Government had recorded in para 7.39 that

TRAI also recommended that the

guidelines for Unified licensing should include nominal entry fee, USO etc.

Thus, the stipulation of the DoT to benchmark entry fee in respect of new licenses

also at the same level which was allowed for migration of existing BSOs was not

consistent with the recommendations of TRAI (2003). This issue was neither

deliberated by the TRAI in its recommendations (2003) nor at the Telecom

Commission level nor by the GoM on Telecom matters constituted in September

2003. The Cabinet also did not give any directions on the issue.

3.1.5 One of the major objectives of movement towards Unified licensing regime, of

which first step was migration of existing licensees, was to ultimately de-link

spectrum from licence and encourage its efficient use by rational allocation

procedure and pricing. Under the fully unified licensing regime it was envisaged that

the licence fee would be nominal allowing the operator to provide different telecom

services with a separate procedure /regulation for allotting spectrum for which TRAI

had yet to give its recommendations. TRAI's recommendations in this regard have

not yet been implemented by the DoT, which also meant that an important and

crucial objective of 2003 policy remained unachieved.

3.1.6 The Ministry justified the non revision of entry fee on the ground that the entry fee

recommended by TRAI in August 2003 was not only for migration of existing

operators but also for new prospective UASL operators as well and the

recommendations were approved by the Cabinet on 31.10.2003. Further, the Union

Cabinet had authorised DoT to finalise the details of implementation with the

approval of Hon'ble MoC&IT and hence the guidelines were issued in November

2003. The Ministry also stated that their action was also consistent with the

clarification given by the then Chairman TRAI (November 2003). It was also stated

that TRAI submitted two recommendations on fully Unified Licencing regime in

2005 but could not be implemented since the Convergence Bill lapsed in Parliament.

“taking cognizance of spectrum availability,

TRAI is in favour of introducing more competition. However, we feel that in lieu of

more cellular operators it would be more appropriate to have competition in the

Unified Licensing framework which will be initiated after 6 months”

“the induction of additional mobile service providers in various service areas can

be considered if there is adequate availability of spectrum. As the existing players

have to improve the efficiency of utilisation of spectrum and if Government

ensures availability of additional spectrum then in the existing licensing regime,

they may introduce additional players through a multi-stage bidding process as

was followed for fourth cellular operator”.


3.1.3 Based on the recommendations of Group of Ministers which agreed with the

principles laid down by TRAI in its Report, Cabinet (31 October 2003) approved the

proposal for charting the course for Universal Licensing Regime in the following

manner:-

In pursuance to the Cabinet's approval, the DoT issued the guidelines on UAS

Licencing (11 November 2003), for moving towards UASL regime by giving the

option to all existing BSOs and CMSPs to migrate to UASL regime. The guidelines

also included a condition that “All applications for new Access Services Licence shall

be in the category of Unified Access Services Licence.” There was ambiguity

regarding entry fee to be charged from the new licensees as TRAI had not given any

recommendation regarding introduction of new operators in the first phase of UASL

regime. Secretary, DoT, spoke to the Chairman, TRAI who clarified

(14 November 2003) that entry fee of the new unified licensee would be the entry thfee of 4 Cellular Operator and in service areas where there is no fourth operator,

the entry fee of existing BSO fixed by the Government (based on TRAI

recommendations). DoT decided to receive all applications under UAS without

revision of the spectrum allocation procedures/revision of entry fee, which

automatically lifted the restriction on the number of operators in the UAS regime.

3.1.4 TRAI's Recommendations of 2003 not followed in spirit

In its recommendation, TRAI had considered three alternatives for migration of

existing operators in para 7.16 to 7.18 of their Report submitted to Government on

27 October 2003, including that of bidding by the existing and new prospective

operators, but did not favour it on the grounds of likely delay in implementation of

UAS regime. TRAI recommended a third option in para 7.18 of its Report which

suggested migration of existing BSPs by charging entry fee determined through a

bidding process in 2001 for the fourth cellular operator and no entry fee from the

existing CMSPs. There was no mention regarding entry fee to be charged from the

n A two-stage process; the Unified Access Regime for basic and cellular operators

allowing a migration path to existing BSPs and CMSPs in the first phase to be

implemented immediately followed by a second phase of a fully Unified

Licensing/Authorisation Regime within six months, bringing all telecom services

under one licence, after a process of detailed consultation by TRAI;

n Fee paid by the fourth cellular operator to be used as benchmark for migration

of BSOs to the new access regime and no fee to be paid by the existing CMSPs for

migrating to new regime;

n The DoT to be authorised to finalise details of implementation of UAS and the

fully Unified Licence Regime with the approval of the Hon'ble Minister of

Communication & Information Technology (MoC&IT) based on the

recommendations of TRAI.


The contention is not correct as the issue of the non revision of entry fee for new

prospective UASL operators had not even been raised in the note put up to the

Cabinet. Even TRAI in their report (October 2003) had recommended for a two stage

implementation of the UAS licensing regime in which the first phase was regarding

migration of existing BSOs and CMSPs to the UAS and the second phase for the new

UAS licences. The first phase was to be implemented immediately while the second

phase was to commence only after the receipt of fresh recommendations of TRAI

within six months (Para 7.1 of TRAI recommendations of October 2003). Therefore

the issue of non revision of entry fee for new licensees/operators was not discussed

in any forum- Telecom Commission, TRAI, GOM or Cabinet. If the DoT needed more

clarity in implementing recommendations of the TRAI, it should have written for

clarifications from the TRAI on the specific issues. Raising/discussing the issues on

telephone and getting clarification even in a letter from the Chairman TRAI on the

same day in his individual capacity on such a critical issue shows undue haste and an

avoidance for following the normal official procedures by the DoT. Further, the

Chairman, TRAI did not have the authority to issue a clarification on an issue which

had not been discussed and deliberated upon in the Authority. The clarification was

not in line with the recommendations of TRAI as para 7.39 of the Report read that “if

Government ensures availability of additional spectrum then in the existing

licensing regime, they may introduce additional players through a multi-stage

bidding process as was followed for fourth cellular operator”. Any such clarification,

which altered the TRAI's recommendations substantively, should have been taken to

the GoM and Cabinet as their decision was based on the original TRAI's

recommendations.

3.1.7 The DoT's action of applying the rates approved for the existing operators for

migrating to UAS regime, to new applicants also by relying on the clarification of the

Chairman TRAI in his individual capacity was inconsistent with the

recommendations of the TRAI (2003) and went beyond the authority given by the

Cabinet. It also violated all canons of financial propriety. The DoT had to resort to

informal clarifications from TRAI before concluding that new applications would also

be at the entry fee of price determined for 4th CMSP in 2001 as against TRAIs

recommendation of introducing new operators in the existing regime through a

multi-stage bidding process. Elimination of bidding process without delinking

licensing from spectrum was not intended by TRAI.

The decision to continue to charge entry fee at 2001 level even from the new licensees under UAS regime in 2003, was thus not deliberated either in the TRAI or Telecom Commission or GoM or Cabinet.


The MoF, right from the year 2003, quoting international practises and scarcity factor had

maintained that auction of spectrum and its trading under a regulatory frame-work could

induce competition and transparency in the system and would result in most efficient

utilisation of spectrum. TRAI in October 2003, while recommending Unified Services

Licensing, had also proposed to submit a separate report regarding spectrum allocation and

pricing. Based on these inputs, Cabinet, in its decision of 31 October 2003 while charting the

course to the UAS and US licencing regime had also approved the following:

3.2.1 Thus, spectrum pricing issue was to be decided in consultation with the MoF.

However, when a GoM was constituted in February 2006, its Terms of Reference

(ToR) were modified at the instance of the DoT to keep the issue of spectrum pricing

outside its purview. Though MoF insisted for its inclusion in the ToR for the GoM,

DoT maintained that 'spectrum pricing was within the normal work carried out by

them'. The MoF opined that spectrum pricing was an issue which has far reaching

consequences for the economy and needed to be debated, but this was not

considered at the highest level and the views of the DoT prevailed in finalisation of

ToR. The GoM's role, in December 2006, at the instance of the DoT, was confined to

issues concerning 'spectrum vacation'. Thus, without MoF getting a chance to

contribute to the issue of pricing of spectrum, new licences continued to be issued

along with the spectrum.

It was also noted that the DoT kept the applications for UAS licence pending since

March 2006 on the grounds of non-availability of spectrum, though a decision to get

the spectrum vacated from MoD was taken way back in 2003. DoT admitted that

prior to April 2007, availability of spectrum was not quantified and GSM spectrum

allotments to service providers/operators were made after due co-ordination with

MoD on a case to case basis. Since the availability of spectrum had not been

quantified till April 2007, the basis for keeping the applications pending and seeking

TRAI recommendation (April 2007) on limiting the number of Access Service

Providers on the grounds of non-availability of spectrum is inexplicable.

n adequate spectrum would be made available for unimpeded growth of Telecom

services for which WPC wing of the DoT and Ministry of Defence(MoD) should

coordinate;

n MoF will provide MoD adequate budget and;

n The DoT and the MoF would discuss and finalise pricing formula for spectrum

including incentive for efficient use and disincentive for sub-optimal usages.

Issue of Price discovery of spectrum was over looked 3.2


The contention is not correct as the issue of the non revision of entry fee for new

prospective UASL operators had not even been raised in the note put up to the

Cabinet. Even TRAI in their report (October 2003) had recommended for a two stage

implementation of the UAS licensing regime in which the first phase was regarding

migration of existing BSOs and CMSPs to the UAS and the second phase for the new

UAS licences. The first phase was to be implemented immediately while the second

phase was to commence only after the receipt of fresh recommendations of TRAI

within six months (Para 7.1 of TRAI recommendations of October 2003). Therefore

the issue of non revision of entry fee for new licensees/operators was not discussed

in any forum- Telecom Commission, TRAI, GOM or Cabinet. If the DoT needed more

clarity in implementing recommendations of the TRAI, it should have written for

clarifications from the TRAI on the specific issues. Raising/discussing the issues on

telephone and getting clarification even in a letter from the Chairman TRAI on the

same day in his individual capacity on such a critical issue shows undue haste and an

avoidance for following the normal official procedures by the DoT. Further, the

Chairman, TRAI did not have the authority to issue a clarification on an issue which

had not been discussed and deliberated upon in the Authority. The clarification was

not in line with the recommendations of TRAI as para 7.39 of the Report read that “if

Government ensures availability of additional spectrum then in the existing

licensing regime, they may introduce additional players through a multi-stage

bidding process as was followed for fourth cellular operator”. Any such clarification,

which altered the TRAI's recommendations substantively, should have been taken to

the GoM and Cabinet as their decision was based on the original TRAI's

recommendations.

3.1.7 The DoT's action of applying the rates approved for the existing operators for

migrating to UAS regime, to new applicants also by relying on the clarification of the

Chairman TRAI in his individual capacity was inconsistent with the

recommendations of the TRAI (2003) and went beyond the authority given by the

Cabinet. It also violated all canons of financial propriety. The DoT had to resort to

informal clarifications from TRAI before concluding that new applications would also

be at the entry fee of price determined for 4th CMSP in 2001 as against TRAIs

recommendation of introducing new operators in the existing regime through a

multi-stage bidding process. Elimination of bidding process without delinking

licensing from spectrum was not intended by TRAI.

The decision to continue to charge entry fee at 2001 level even from the new licensees under UAS regime in 2003, was thus not deliberated either in the TRAI or Telecom Commission or GoM or Cabinet.


The MoF, right from the year 2003, quoting international practises and scarcity factor had

maintained that auction of spectrum and its trading under a regulatory frame-work could

induce competition and transparency in the system and would result in most efficient

utilisation of spectrum. TRAI in October 2003, while recommending Unified Services

Licensing, had also proposed to submit a separate report regarding spectrum allocation and

pricing. Based on these inputs, Cabinet, in its decision of 31 October 2003 while charting the

course to the UAS and US licencing regime had also approved the following:

3.2.1 Thus, spectrum pricing issue was to be decided in consultation with the MoF.

However, when a GoM was constituted in February 2006, its Terms of Reference

(ToR) were modified at the instance of the DoT to keep the issue of spectrum pricing

outside its purview. Though MoF insisted for its inclusion in the ToR for the GoM,

DoT maintained that 'spectrum pricing was within the normal work carried out by

them'. The MoF opined that spectrum pricing was an issue which has far reaching

consequences for the economy and needed to be debated, but this was not

considered at the highest level and the views of the DoT prevailed in finalisation of

ToR. The GoM's role, in December 2006, at the instance of the DoT, was confined to

issues concerning 'spectrum vacation'. Thus, without MoF getting a chance to

contribute to the issue of pricing of spectrum, new licences continued to be issued

along with the spectrum.

It was also noted that the DoT kept the applications for UAS licence pending since

March 2006 on the grounds of non-availability of spectrum, though a decision to get

the spectrum vacated from MoD was taken way back in 2003. DoT admitted that

prior to April 2007, availability of spectrum was not quantified and GSM spectrum

allotments to service providers/operators were made after due co-ordination with

MoD on a case to case basis. Since the availability of spectrum had not been

quantified till April 2007, the basis for keeping the applications pending and seeking

TRAI recommendation (April 2007) on limiting the number of Access Service

Providers on the grounds of non-availability of spectrum is inexplicable.

n adequate spectrum would be made available for unimpeded growth of Telecom

services for which WPC wing of the DoT and Ministry of Defence(MoD) should

coordinate;

n MoF will provide MoD adequate budget and;

n The DoT and the MoF would discuss and finalise pricing formula for spectrum

including incentive for efficient use and disincentive for sub-optimal usages.

Issue of Price discovery of spectrum was over looked 3.2

3.2.2 Again in August 2007, TRAI in its report observed that the entry fee as it existed in

2001 was not a realistic price for obtaining a licence in the changed situation

considering the dynamism and growth of telecom sector and it needs to be

reassessed through a market mechanism. It also observed that value of spectrum

was not correctly reflected in the extant pricing model and recommended again for

de-linking of spectrum from licence. Yet, TRAI did not favour any change in 2G

spectrum pricing even for new entrants on the grounds that it would affect the

principles for level playing field for the new operators. It is to be noted that the role

of TRAI, as per the TRAI Act is primarily to foster competition and to ensure a level

playing field in the sector. Generation of revenue for the Government is not within

the scope of its mandate and hence not perhaps a basis for framing its

recommendations. Thus, while accepting the recommendations of TRAI, protecting

the financial interests of the Government should have been an important

consideration for the DoT, more so, when it had left out MoF from the decision

making process with regard to the pricing formula of spectrum.

3.2.3 The DoT in response to the audit observation, stated (July 2010) that in February

2006 the then Hon'ble MoC& IT had apprised the Hon'ble Prime Minister that one

major bottleneck in the sustained growth of telecom sector was the availability of

spectrum and not its allocation and thus ToR was revised with the approval of the

Hon'ble Prime Minister.

3.2.4 While ensuring availability of spectrum which is also at a price, the DoT should not

have lost sight of the need for a realistic price for 2G spectrum, especially in the light

of the fact that the price being charged was discovered from a nascent telecom

market in the year 2001 and was approved by the Government as benchmark only

for the purpose of allowing migration of Basic Operators to UAS regime in 2003 for

operating mobile services.

3.2.5 MoF while agreeing with the Audit view stated that the Ministry has at various

points of time been advocating for a more rational mechanism for allocation and

pricing of 2G spectrum. Right from August 2003 they have been recommending

greater orientation in spectrum allocation, keeping efficiency and optimal utilisation

considerations in mind, through auction to users, who are willing to pay the

maximum fee. MoF concurred with Audit that the assumption of the DoT to the

effect that spectrum pricing was within its normal work allocation was not tenable.

The MoF observed that “in view the directions of the Union Cabinet (October 2003)

and particularly in the absence of requisite clarity in the recommendations of TRAI

and decision of the Union Cabinet, in regard to the fixation of entry fees for new

licensees, prudent principles of governance would have required DoT to engage in

further inter-ministerial discussions particularly with the MoF. The fact that this

was not done despite repeated advices from MoF does give scope for creation of

doubt, on the validity of the decision taken to fix the entry fee for new licenses at

2001 levels”.


It is important for a growing economy that a policy decision is subject to review /is revisited

constantly with adequate feed-back for application of collective wisdom of Government,

particularly if it relates to a sector witnessing transition and operating within a dynamic

environment, as was the case with the Telecom sector during 2003-2009. In this case, despite

gaps in policy implementation as detailed above, there was no attempt on the part of the DoT

to review the implementation processes holistically, which is one reason for the pricing issue

remaining unaddressed.

When two-stage Unified Access Licensing policy could not be implemented fully as cleared by

the Cabinet in October 2003, it was never again placed before the Cabinet for

charting/approving the next /alternative course of action. The Cabinet did not get the chance

to consider the changed scenario whereby Unified Services Licensing Regime introduced with

the intention of de-linking spectrum allocation from licensing could not be fully achieved. An

approved interim stage was thus treated as a final destination by the DoT.

3.3.1 DoT justified continuance of 2001 rates for issue of licenses to Audit stating that the

Government treats telecom sector as an infrastructure sector and accordingly the

Government's broad policy of taxes and regulation of the sector are promotional

where revenue considerations play a secondary role. Also, the policy of grant of UAS

licences was not changed since introduction because this has resulted in an

unprecedented growth of telecom services. Change in policy is considered when the

existing policies are not delivering desired results which were not the case in the

telecom sector.

3.3.2 Policies are evolved through the initiatives of the concerned Ministries. The response

of DoT suggested that it had not taken into account the unprecedented growth in the

telecom sector, the scarcity of the resources and the increasing economic value of 2G

spectrum, when it decided not to review the pricing of spectrum. This was despite

TRAI's observation that value of spectrum needed to be reassessed through a market

mechanism and MoF also was advising for rational pricing.


Move from Unified Access Service to Unified Licencing - Not Reviewed For 6 Years

3.3

Thus, despite all agencies having full knowledge of scarcity and under pricing of spectrum, the

entry fee for issue of licences continued to be pegged at 2001 rates even in 2007 without

delinking and independently discovering the price of spectrum through a market mechanism.

Meanwhile, the entire scenario in the telecom sector had transformed amidst unprecedented

growth in the sector.

3.2.2 Again in August 2007, TRAI in its report observed that the entry fee as it existed in

2001 was not a realistic price for obtaining a licence in the changed situation

considering the dynamism and growth of telecom sector and it needs to be

reassessed through a market mechanism. It also observed that value of spectrum

was not correctly reflected in the extant pricing model and recommended again for

de-linking of spectrum from licence. Yet, TRAI did not favour any change in 2G

spectrum pricing even for new entrants on the grounds that it would affect the

principles for level playing field for the new operators. It is to be noted that the role

of TRAI, as per the TRAI Act is primarily to foster competition and to ensure a level

playing field in the sector. Generation of revenue for the Government is not within

the scope of its mandate and hence not perhaps a basis for framing its

recommendations. Thus, while accepting the recommendations of TRAI, protecting

the financial interests of the Government should have been an important

consideration for the DoT, more so, when it had left out MoF from the decision

making process with regard to the pricing formula of spectrum.

3.2.3 The DoT in response to the audit observation, stated (July 2010) that in February

2006 the then Hon'ble MoC& IT had apprised the Hon'ble Prime Minister that one

major bottleneck in the sustained growth of telecom sector was the availability of

spectrum and not its allocation and thus ToR was revised with the approval of the

Hon'ble Prime Minister.

3.2.4 While ensuring availability of spectrum which is also at a price, the DoT should not

have lost sight of the need for a realistic price for 2G spectrum, especially in the light

of the fact that the price being charged was discovered from a nascent telecom

market in the year 2001 and was approved by the Government as benchmark only

for the purpose of allowing migration of Basic Operators to UAS regime in 2003 for

operating mobile services.

3.2.5 MoF while agreeing with the Audit view stated that the Ministry has at various

points of time been advocating for a more rational mechanism for allocation and

pricing of 2G spectrum. Right from August 2003 they have been recommending

greater orientation in spectrum allocation, keeping efficiency and optimal utilisation

considerations in mind, through auction to users, who are willing to pay the

maximum fee. MoF concurred with Audit that the assumption of the DoT to the

effect that spectrum pricing was within its normal work allocation was not tenable.

The MoF observed that “in view the directions of the Union Cabinet (October 2003)

and particularly in the absence of requisite clarity in the recommendations of TRAI

and decision of the Union Cabinet, in regard to the fixation of entry fees for new

licensees, prudent principles of governance would have required DoT to engage in

further inter-ministerial discussions particularly with the MoF. The fact that this

was not done despite repeated advices from MoF does give scope for creation of

doubt, on the validity of the decision taken to fix the entry fee for new licenses at

2001 levels”.


It is important for a growing economy that a policy decision is subject to review /is revisited

constantly with adequate feed-back for application of collective wisdom of Government,

particularly if it relates to a sector witnessing transition and operating within a dynamic

environment, as was the case with the Telecom sector during 2003-2009. In this case, despite

gaps in policy implementation as detailed above, there was no attempt on the part of the DoT

to review the implementation processes holistically, which is one reason for the pricing issue

remaining unaddressed.

When two-stage Unified Access Licensing policy could not be implemented fully as cleared by

the Cabinet in October 2003, it was never again placed before the Cabinet for

charting/approving the next /alternative course of action. The Cabinet did not get the chance

to consider the changed scenario whereby Unified Services Licensing Regime introduced with

the intention of de-linking spectrum allocation from licensing could not be fully achieved. An

approved interim stage was thus treated as a final destination by the DoT.

3.3.1 DoT justified continuance of 2001 rates for issue of licenses to Audit stating that the

Government treats telecom sector as an infrastructure sector and accordingly the

Government's broad policy of taxes and regulation of the sector are promotional

where revenue considerations play a secondary role. Also, the policy of grant of UAS

licences was not changed since introduction because this has resulted in an

unprecedented growth of telecom services. Change in policy is considered when the

existing policies are not delivering desired results which were not the case in the

telecom sector.

3.3.2 Policies are evolved through the initiatives of the concerned Ministries. The response

of DoT suggested that it had not taken into account the unprecedented growth in the

telecom sector, the scarcity of the resources and the increasing economic value of 2G

spectrum, when it decided not to review the pricing of spectrum. This was despite

TRAI's observation that value of spectrum needed to be reassessed through a market

mechanism and MoF also was advising for rational pricing.


Move from Unified Access Service to Unified Licencing - Not Reviewed For 6 Years

3.3

Thus, despite all agencies having full knowledge of scarcity and under pricing of spectrum, the

entry fee for issue of licences continued to be pegged at 2001 rates even in 2007 without

delinking and independently discovering the price of spectrum through a market mechanism.

Meanwhile, the entire scenario in the telecom sector had transformed amidst unprecedented

growth in the sector.


Chapter 4

Procedures Adopted inIssue of UAS Licences and

Allotment of Spectrum4

efore detailing the audit findings relating to procedural aspects of issue of licences and B allocation of spectrum various steps involved have been listed out in the following chart.

Procedures for Issue of Licence

Receipt of Application

Compliance ofLoI conditions

Processing ofapplications

Issue of License

Application forspectrum

Issue of LoI

l

l

Applications received in central registry and date recorded for making priority list based on date of receipt of application

Enclosures includes requisite processing fee

l

l

l

Compliance to LoI conditions within 15 days from the date of issue of LoI

Payment of one-time entry fee

Submission of Performance Bank Gurantee (PBG) and Financial Bank Gurantee (FBG) by the applicant

l

l

Scrutiny of application based on the criteria contained in the guidelines

Final Priority list of eligible applicants drawn up

l

l

Signing of UAS license

Licensee becomes eligible to apply for wireless license

l

l

Application for wireless license

Allocation of spectrum on first-come-first serve (FCFS) basis

l LoI to be issued in 30 days by post to the eligible applicants

Gaps in implementation of policy led to a situation, when on the one hand allocation of

spectrum was not delinked from licences and on the other hand applications for new

licences continued to be received by the DoT without framing guidelines for UASL. The

guidelines were finally issued in December 2005 and at that time also spectrum was not

delinked from licence as intended through the 2003 policy. Even the provisions of these

guidelines were not meticulously followed.

As per guidelines issued for UASL (2005), licences were to be issued on continuous basis

without any restriction on the number of entrants in a service area and applications were to

be processed within 30 days of submission. Allocation of radio-spectrum and grant of

wireless licence was subject to availability and in case UAS licensee was not allocated

Issue of UAS Licences and Allocation of 2G Spectrum4.1


Chapter 4

Procedures Adopted inIssue of UAS Licences and

Allotment of Spectrum4

efore detailing the audit findings relating to procedural aspects of issue of licences and B allocation of spectrum various steps involved have been listed out in the following chart.

Procedures for Issue of Licence

Receipt of Application

Compliance ofLoI conditions

Processing ofapplications

Issue of License

Application forspectrum

Issue of LoI

l

l

Applications received in central registry and date recorded for making priority list based on date of receipt of application

Enclosures includes requisite processing fee

l

l

l

Compliance to LoI conditions within 15 days from the date of issue of LoI

Payment of one-time entry fee

Submission of Performance Bank Gurantee (PBG) and Financial Bank Gurantee (FBG) by the applicant

l

l

Scrutiny of application based on the criteria contained in the guidelines

Final Priority list of eligible applicants drawn up

l

l

Signing of UAS license

Licensee becomes eligible to apply for wireless license

l

l

Application for wireless license

Allocation of spectrum on first-come-first serve (FCFS) basis

l LoI to be issued in 30 days by post to the eligible applicants

Gaps in implementation of policy led to a situation, when on the one hand allocation of

spectrum was not delinked from licences and on the other hand applications for new

licences continued to be received by the DoT without framing guidelines for UASL. The

guidelines were finally issued in December 2005 and at that time also spectrum was not

delinked from licence as intended through the 2003 policy. Even the provisions of these

guidelines were not meticulously followed.

As per guidelines issued for UASL (2005), licences were to be issued on continuous basis

without any restriction on the number of entrants in a service area and applications were to

be processed within 30 days of submission. Allocation of radio-spectrum and grant of

wireless licence was subject to availability and in case UAS licensee was not allocated

Issue of UAS Licences and Allocation of 2G Spectrum4.1

spectrum due to non-availability, the Licensee was required to endeavour to roll out services

using wire-line technology. However, applications for issue of UAS licence were not

processed within stipulated period and delayed inordinately by the DoT. In 2004-05, 14 out

of 15 applications for grant of UAS Licences were delayed by 608 to 969 days. In 2005-06, all

9 applications were delayed by 232 to 421 days. All 29 applications for issue of new UAS

Licence received in 2006-07 were not processed till October 2007 without assigning any

reason/justification on records and without sending any communications to the applicants.

This largely opaque and uncertain delivery system coupled with fast paced growth in the

telecom sector during the decade led to heavy rush of companies to the sector.

After issuing 51 new licences under UAS regime since 2004, and keeping 53 applications

pending from January 2006, DoT sought recommendation from TRAI in April 2007 on the

issue of limiting the number of access providers in each service area. TRAI, in its report of 28

August 2007 recommended 'no cap' on the number of licences.


4.1.1 Undue Haste in Receiving and Processing Applications

Despite the TRAI's recommendation of 'no cap' which was accepted by the DoT in

October 2007, on 24 September 2007 DoT issued a Press Release stating that

applications for issue of licences would be accepted only up to 01.10.2007. This

press notification signaled the possibility of an impending cap in the number of

licences to be awarded, which led to a sudden spurt in applications. Till issue of this

press release, 167 applications had been received including those remaining

unprocessed since March 2006. After introduction of this artificial cap by the DoT,

there was a sudden spurt in applications and 408 more applications were received in

next 8 days resulting in accumulation of 575 applications till the declared cut-off

date of 01.10.2007. This spurt in applications indicated that the applicants were

aware that spectrum was a scarce resource and such scarcity would become acute

after this round of spectrum allocation, leaving little or no spectrum for future

allocations. Further, even this cut-off date was not taken into consideration and on

the orders of Hon'ble MoCIT, only applications received upto 25 September 2007

were considered for the issue of LOI “in order to avoid legal implications” as

discussed in the succeeding paragraphs

The heavy rush for applications – 408 new requests in 8 days- and to process them in a fair

and transparent manner was a formidable situation DoT had to face and so DoT requested

(October 2007) the Ministry of Law & Justice (MLJ) to communicate the opinion of the Ld.

Attorney General of India/Solicitor General of India to enable it to handle this

unprecedented situation in a fair and equitable manner which would be legally tenable. The

matter was considered in the MLJ and Hon'ble MLJ observed (November 2007) that

The observation of the Hon'ble MLJ was discussed in the Ministry and was

treated as “out of context” by the Hon'ble MOC&IT and thus a reference to EGoM for

discussion and decision on this important issue was deliberately avoided.

“in view

of the importance of the case and the various options indicated in the statement of the

case, it is necessary that the whole issue is first considered by an Empowered Group of

Ministers (EGoM) and in that process legal opinion of the Attorney General can be

obtained.”


Advice of the Hon'ble Minister of Law and Justice was ignored by DoT

The recommendations of the TRAI (2007) were crucial from the perspective of the

management of the Telecom sector and spectrum management and yet they were not put

up to the full Telecom Commission before the acceptance of the recommendations. It is a

fact that a meeting of the internal members of the DoT was held on 10 October 2007 to

discuss the TRAI recommendations but there was nothing on record in the file to show as to

why the recommendations of the TRAI were not taken to the full Telecom Commission.

Approval of Telecom Commission not taken4.2

4.3

Neither the agenda papers nor minutes of the meeting of the internal members of the

Telecom Commission held on 10 October 2007 to discuss the recommendations of TRAI

were circulated among the other members of Telecom Commission i.e. Finance Secretary,

Secretary Industry, Secretary IT and Secretary Planning Commission. As such, no meeting of

the full Telecom Commission took place between the date of submission of the

recommendations of TRAI i.e. 27

August 2007 and the date of

issue of LOI to 121 applications

i.e. 10 January 2008 to discuss

the recommendations of the

TRAI. Thus DoT chose to

consider the recommendations

without the benefit of the inputs

from four important secretaries

of the Government of India on

crucial issues related to Telecom

sector. Instead, in view of the

unprecedented response from

the applicants and the fact that

the DoT was not equipped to cope up with the huge demand, they approached Ministry of

Law & Justice (MLJ) with four options (Box) for their advice.

Alternatives referred to the Ministry of Law & Justice for opinion of the Learned Attorney General of India/Solicitor General of India for processing new applications:

n FCFS basis in chronological order of receipt of applications in each service area with 7/15 days time for compliance of LOIs as per the procedure existing. Those who will comply with LOI's conditions within stipulated time will retain the seniority of date of application for licence /spectrum.

n LOIs to all applicants who had applied for UASL by 25-09-2007.

n LOIs to all eligible applications received up to the cut off date.

n Any other better approach which might be legally tenable and sustainable.

spectrum due to non-availability, the Licensee was required to endeavour to roll out services

using wire-line technology. However, applications for issue of UAS licence were not

processed within stipulated period and delayed inordinately by the DoT. In 2004-05, 14 out

of 15 applications for grant of UAS Licences were delayed by 608 to 969 days. In 2005-06, all

9 applications were delayed by 232 to 421 days. All 29 applications for issue of new UAS

Licence received in 2006-07 were not processed till October 2007 without assigning any

reason/justification on records and without sending any communications to the applicants.

This largely opaque and uncertain delivery system coupled with fast paced growth in the

telecom sector during the decade led to heavy rush of companies to the sector.

After issuing 51 new licences under UAS regime since 2004, and keeping 53 applications

pending from January 2006, DoT sought recommendation from TRAI in April 2007 on the

issue of limiting the number of access providers in each service area. TRAI, in its report of 28

August 2007 recommended 'no cap' on the number of licences.


4.1.1 Undue Haste in Receiving and Processing Applications

Despite the TRAI's recommendation of 'no cap' which was accepted by the DoT in

October 2007, on 24 September 2007 DoT issued a Press Release stating that

applications for issue of licences would be accepted only up to 01.10.2007. This

press notification signaled the possibility of an impending cap in the number of

licences to be awarded, which led to a sudden spurt in applications. Till issue of this

press release, 167 applications had been received including those remaining

unprocessed since March 2006. After introduction of this artificial cap by the DoT,

there was a sudden spurt in applications and 408 more applications were received in

next 8 days resulting in accumulation of 575 applications till the declared cut-off

date of 01.10.2007. This spurt in applications indicated that the applicants were

aware that spectrum was a scarce resource and such scarcity would become acute

after this round of spectrum allocation, leaving little or no spectrum for future

allocations. Further, even this cut-off date was not taken into consideration and on

the orders of Hon'ble MoCIT, only applications received upto 25 September 2007

were considered for the issue of LOI “in order to avoid legal implications” as

discussed in the succeeding paragraphs

The heavy rush for applications – 408 new requests in 8 days- and to process them in a fair

and transparent manner was a formidable situation DoT had to face and so DoT requested

(October 2007) the Ministry of Law & Justice (MLJ) to communicate the opinion of the Ld.

Attorney General of India/Solicitor General of India to enable it to handle this

unprecedented situation in a fair and equitable manner which would be legally tenable. The

matter was considered in the MLJ and Hon'ble MLJ observed (November 2007) that

The observation of the Hon'ble MLJ was discussed in the Ministry and was

treated as “out of context” by the Hon'ble MOC&IT and thus a reference to EGoM for

discussion and decision on this important issue was deliberately avoided.

“in view

of the importance of the case and the various options indicated in the statement of the

case, it is necessary that the whole issue is first considered by an Empowered Group of

Ministers (EGoM) and in that process legal opinion of the Attorney General can be

obtained.”


Advice of the Hon'ble Minister of Law and Justice was ignored by DoT

The recommendations of the TRAI (2007) were crucial from the perspective of the

management of the Telecom sector and spectrum management and yet they were not put

up to the full Telecom Commission before the acceptance of the recommendations. It is a

fact that a meeting of the internal members of the DoT was held on 10 October 2007 to

discuss the TRAI recommendations but there was nothing on record in the file to show as to

why the recommendations of the TRAI were not taken to the full Telecom Commission.

Approval of Telecom Commission not taken4.2

4.3

Neither the agenda papers nor minutes of the meeting of the internal members of the

Telecom Commission held on 10 October 2007 to discuss the recommendations of TRAI

were circulated among the other members of Telecom Commission i.e. Finance Secretary,

Secretary Industry, Secretary IT and Secretary Planning Commission. As such, no meeting of

the full Telecom Commission took place between the date of submission of the

recommendations of TRAI i.e. 27

August 2007 and the date of

issue of LOI to 121 applications

i.e. 10 January 2008 to discuss

the recommendations of the

TRAI. Thus DoT chose to

consider the recommendations

without the benefit of the inputs

from four important secretaries

of the Government of India on

crucial issues related to Telecom

sector. Instead, in view of the

unprecedented response from

the applicants and the fact that

the DoT was not equipped to cope up with the huge demand, they approached Ministry of

Law & Justice (MLJ) with four options (Box) for their advice.

Alternatives referred to the Ministry of Law & Justice for opinion of the Learned Attorney General of India/Solicitor General of India for processing new applications:

n FCFS basis in chronological order of receipt of applications in each service area with 7/15 days time for compliance of LOIs as per the procedure existing. Those who will comply with LOI's conditions within stipulated time will retain the seniority of date of application for licence /spectrum.

n LOIs to all applicants who had applied for UASL by 25-09-2007.

n LOIs to all eligible applications received up to the cut off date.

n Any other better approach which might be legally tenable and sustainable.


4.3.1

the subject of a case concerns more than one department, no decision be taken or

order issued until all such departments have concurred, or, failing such concurrence,

a decision thereon has been taken by or under the authority of the Cabinet. The

second schedule (Rule 7) of TOB Rules further details the cases which shall be

brought before the cabinet for decision which includes the following:

DoT justified its actions on the ground that the reference was made to the Ministry

of Law and Justice in the background of large number of applications and that their

advice was discussed in the Department and the existing policy for grant of UAS

licences was approved by the Hon'ble MoC& IT as any change could have led to

litigation and not sustainable under law. They further stated that the issue solely

falls under the purview of the Ministry of Communications & IT as per Government

of India (Transactions of Business Rules), 1961 and did not require any consultation

in GoM/Cabinet for taking decisions and it was wrong to perceive that any matter

which is placed before the Ministry of Law for taking legal advice and not accepted

by the concerned Ministry, is to be placed before the GoM or the Cabinet. Moreover,

the need for forming an EGoM arises when a new policy is being framed and in this

particular issue, no new policy for grant of UASL was being framed.

The contention of the DoT is untenable as rejection of the advice of Hon'ble MLJ to

have detailed deliberations on the issues in the EGoM on the ground that changes in

policy might lead to litigation goes against the well established and time-tested

procedure of functioning of the Government and the collective responsibility of the

Union Cabinet. Ministry of Law and Justice is the nodal authority in the Government

for providing legal opinion and to say that implementation of their

advice/suggestion would lead to litigation appear to be showing lack of trust in the

nodal department of the Government of India dealing with Law and Justice and is

thus at best a questionable stand. A prudent decision would have been to go by the

advice of Law Ministry on the issue of legal tenability and to discuss threadbare the

various issues involved in issue of new licences at an inter ministerial forum.

The Government of India (Transaction of Business) Rules, 1961 stipulates that when

n cases involving financial implications on which the Minister of Finance

desires a decision of the Cabinet.

n cases in which a difference of opinion arises between two or more Ministers

and a Cabinet decision is desired.

Thus, the difference of opinion between the Hon'ble MOC &IT and the Hon'ble MLJ

regarding referring the matter to an EGoM remained unresolved and the DoT went

ahead with processing of large number of applications without deciding on the issue

of legal tenability raised by them.

On 2 November 2007, Hon'ble Prime Minister wrote to Hon'ble MoC&IT that given the back

drop of inadequate spectrum and large number of applications received for fresh licences,

DoT should consider (i) introduction of a transparent methodology of auction, wherever

legally and technically feasible and (ii) revision of entry fee, which is currently bench marked

on an old figure. The Hon'ble MoC&IT, on the same day replied that

It is to be noted that teledensity had already reached 18.22 per cent (2007) (as against a

target of 15 by 2010, as envisaged in NTP-1999).

“the issue of auction of

spectrum was considered by the TRAI and the Telecom Commission and was not

recommended as the existing licence holders who are already having spectrum up to 10

MHz per Circle have got it without any spectrum charge. It will be unfair, discriminatory,

arbitrary and capricious to auction spectrum to new applicants as it will not give them

level playing field.

I would like to bring it to your notice that DoT has earmarked totally 100 MHz in 900 MHz

and 1800 MHz bands for 2G mobile services. Out of this, so far a maximum of about 35 to

40 MHz per Circle has been allotted to different operators and being used by them. The

remaining 60 to 65 MHz, including spectrum likely to be vacated by Defence Services, is still

available for 2G services.

Therefore, there is enough scope for allotment of spectrum to few new operators even

after meeting the requirements of existing operators and licensees. An increase in number

of operators will certainly bring real competition which will lead to better services and

increased teledensity at lower tariff. Waiting for spectrum for long after getting licence is

not unknown to the Industry and even at present Aircel, Vodafone, Idea and Dishnet are

waiting for initial spectrum in some Circles since December 2006”.


Hon'ble Prime Minister's suggestion to reconsider the pricing was ignored4.4

Chart - 4.1 Teledensity (Number of telephones per 100 population)

200320022001

10.37 12.220.79

26.88

38.28

48.10

66.39

88.34

110.69

14.32

0.93 1.21 1.49 1.55

1.73 2.34 5.89 9.4615.11

21.19

47.88

36.98

26.22

18.2212.748.957.025.114.293.58

2004 2005 2006 2007 2008 2009 2010

Y E A R

(In

Per

cen

t)

Rural

Total

Urban


4.3.1

the subject of a case concerns more than one department, no decision be taken or

order issued until all such departments have concurred, or, failing such concurrence,

a decision thereon has been taken by or under the authority of the Cabinet. The

second schedule (Rule 7) of TOB Rules further details the cases which shall be

brought before the cabinet for decision which includes the following:

DoT justified its actions on the ground that the reference was made to the Ministry

of Law and Justice in the background of large number of applications and that their

advice was discussed in the Department and the existing policy for grant of UAS

licences was approved by the Hon'ble MoC& IT as any change could have led to

litigation and not sustainable under law. They further stated that the issue solely

falls under the purview of the Ministry of Communications & IT as per Government

of India (Transactions of Business Rules), 1961 and did not require any consultation

in GoM/Cabinet for taking decisions and it was wrong to perceive that any matter

which is placed before the Ministry of Law for taking legal advice and not accepted

by the concerned Ministry, is to be placed before the GoM or the Cabinet. Moreover,

the need for forming an EGoM arises when a new policy is being framed and in this

particular issue, no new policy for grant of UASL was being framed.

The contention of the DoT is untenable as rejection of the advice of Hon'ble MLJ to

have detailed deliberations on the issues in the EGoM on the ground that changes in

policy might lead to litigation goes against the well established and time-tested

procedure of functioning of the Government and the collective responsibility of the

Union Cabinet. Ministry of Law and Justice is the nodal authority in the Government

for providing legal opinion and to say that implementation of their

advice/suggestion would lead to litigation appear to be showing lack of trust in the

nodal department of the Government of India dealing with Law and Justice and is

thus at best a questionable stand. A prudent decision would have been to go by the

advice of Law Ministry on the issue of legal tenability and to discuss threadbare the

various issues involved in issue of new licences at an inter ministerial forum.

The Government of India (Transaction of Business) Rules, 1961 stipulates that when

n cases involving financial implications on which the Minister of Finance

desires a decision of the Cabinet.

n cases in which a difference of opinion arises between two or more Ministers

and a Cabinet decision is desired.

Thus, the difference of opinion between the Hon'ble MOC &IT and the Hon'ble MLJ

regarding referring the matter to an EGoM remained unresolved and the DoT went

ahead with processing of large number of applications without deciding on the issue

of legal tenability raised by them.

On 2 November 2007, Hon'ble Prime Minister wrote to Hon'ble MoC&IT that given the back

drop of inadequate spectrum and large number of applications received for fresh licences,

DoT should consider (i) introduction of a transparent methodology of auction, wherever

legally and technically feasible and (ii) revision of entry fee, which is currently bench marked

on an old figure. The Hon'ble MoC&IT, on the same day replied that

It is to be noted that teledensity had already reached 18.22 per cent (2007) (as against a

target of 15 by 2010, as envisaged in NTP-1999).

“the issue of auction of

spectrum was considered by the TRAI and the Telecom Commission and was not

recommended as the existing licence holders who are already having spectrum up to 10

MHz per Circle have got it without any spectrum charge. It will be unfair, discriminatory,

arbitrary and capricious to auction spectrum to new applicants as it will not give them

level playing field.

I would like to bring it to your notice that DoT has earmarked totally 100 MHz in 900 MHz

and 1800 MHz bands for 2G mobile services. Out of this, so far a maximum of about 35 to

40 MHz per Circle has been allotted to different operators and being used by them. The

remaining 60 to 65 MHz, including spectrum likely to be vacated by Defence Services, is still

available for 2G services.

Therefore, there is enough scope for allotment of spectrum to few new operators even

after meeting the requirements of existing operators and licensees. An increase in number

of operators will certainly bring real competition which will lead to better services and

increased teledensity at lower tariff. Waiting for spectrum for long after getting licence is

not unknown to the Industry and even at present Aircel, Vodafone, Idea and Dishnet are

waiting for initial spectrum in some Circles since December 2006”.


Hon'ble Prime Minister's suggestion to reconsider the pricing was ignored4.4

Chart - 4.1 Teledensity (Number of telephones per 100 population)

200320022001

10.37 12.220.79

26.88

38.28

48.10

66.39

88.34

110.69

14.32

0.93 1.21 1.49 1.55

1.73 2.34 5.89 9.4615.11

21.19

47.88

36.98

26.22

18.2212.748.957.025.114.293.58

2004 2005 2006 2007 2008 2009 2010

Y E A R

(In

Per

cen

t)

Rural

Total

Urban

The telecom sector had reached a phase where, greater consideration was required

to be given to issues of efficient use of spectrum, reflecting its scarcity value in its

pricing and recovery of additional cost to Government in making the spectrum

available. A trade off between assigning more spectrum to an optimum number of

operators per service area with a view to reduce their net-work cost and invite more

competition by no capping, was required to be considered carefully before

committing a substantial part of available spectrum. Further Hon'ble MOC&IT was

incorrect to say that

4.4.1 Ignoring the advice of Law Ministry and the Hon'ble Prime Minister, Hon'ble

MoC&IT therefore decided to go ahead with arbitrarily deciding that the cut off date

for issue of LoI would be advanced to 25th September 2007 and the applications

received would be decided on FCFS basis.

the issue of auction of spectrum was considered by the

Telecom Commission and was not recommended. As stated in the paragraph(4.2),

the recommendations of the TRAI ( August 2007) was never discussed in a meeting

of the full Telecom Commission between date of submission of the TRAI's

recommendations and date of the Hon'ble MoC&IT letter i.e. 2 November 2007.

On the same day through another communication the Hon'ble MoC&IT informed

the Hon'ble Prime minister that “the Department wanted to examine the

possibility of any other procedure in addition to the current procedure of allotment

of licences to process the huge number of applications. A few alternative

procedures as debated in the Department and also opined by few legal experts

were suggested by the Department of Telecom to Ministry of Law & Justice to

examine its legal tenability to avoid future legal complications, if any. Ministry of

Law and Justice, instead of examining the legal tenability of these alternative

procedures suggested referring the matter to Empowered Group of Ministers.

Since, generally new major policy decisions of a Department or inter-

departmental issues are referred to GoM, and needless to say that the present

issue related to procedures, the suggestion of Law Ministry is totally out of

context. Now, the Department has decided to continue with the existing policy

(first-come-first-served) for processing of applications received up to 25th

September 2007, i.e. the date when the news-item on announcement of cut-off

date appeared in the newspapers. The procedure for processing the remaining

applications will be decided at a later date, if any spectrum is left available after

processing the applications received up to 25th September 2007”.



BOX-3

Date Procedural Details

Hon'ble MoC&IT conveyed through press release that no application under UAS will be accepted after 01/10/2007.

Ministry accepted the Recommendations of TRAI. LoIs were issued to the Reliance Communications Ltd and two others for dual technology.

A Press release was issued stating that the TRAI's recommendations have been accepted by the DoT. Policy for the dual technology was also announced.

Ministry of Law & Justice (MLJ) was requested to communicate the opinion of the Ld Attorney General of India/Solicitor General of India on the procedure to be followed.

Opinion of the Hon'ble MLJ was received by DoT.

DoT decided that only the applications received up to 25/09/2007 shall be processed which were 232 in number.

Hon'ble PM wrote to Hon'ble MoC&IT to consider auctioning of spectrum and revision of entry fee in a fair and transparent manner.

Hon'ble MoC&IT wrote to Hon'ble PM that sufficient 2G spectrum available to cater to the requirement of few new operators and more no. of operator will increase tele-density and bring down the tariff.

Hon'ble MoC&IT again wrote to Hon'ble PM justifying the decision of amendment of cut off date and termed the suggestion of Ministry of Law and Justice for GOM as 'out of context'.

Hon'ble MoC&IT again wrote to Hon'ble PM regarding the personal discussion with Hon'ble PM and External Affairs Minister on various issues including issue of dual technology and issue of new licences.

Secretary DoT and Member (Finance) DoT retired.

Hon'ble PM acknowledged the letter dated 26/12/2007 sent by Hon'ble MoC&IT.

A meeting of full Telecom Commission was scheduled for 09.01.2008 to discuss issues of new licences and allocation of spectrum to existing as well as new players by auctions postponed to 15.01.2008.

Decision regarding cut off date being 25/09/2007 was conveyed through a Press Release in the afternoon of 10 January 2008.

Through a press release, companies who had submitted applications on or before 25 September 2007 were advised to depute their authorized representative at 3.30 PM on 10 January 2008 to collect response(s).

Out of 232 applications received up to cut off date 121 LoIs were issued to applicants found eligible.

All applicants communicated their acceptance.78 applicants complied with terms and conditions including submission of entry fee, PBG and FBG.

Remaining 43 applicants complied with terms and conditions.

All UAS licenses were issued to be effective from 25 January 2008.

24/09/2007

18/10/2007

19/10/2007

26/10/ 2007

1/11/2007

02/11/2007

02/11/2007

02/11/2007

02/11/2007

26/12/2007

31/12/2007

03/01/2008

09/01/2008

10/01/2008

10/01/2008

10/01/2008

10/01/2008

11/01/2008

25/01/2008

Chronology of Events

The telecom sector had reached a phase where, greater consideration was required

to be given to issues of efficient use of spectrum, reflecting its scarcity value in its

pricing and recovery of additional cost to Government in making the spectrum

available. A trade off between assigning more spectrum to an optimum number of

operators per service area with a view to reduce their net-work cost and invite more

competition by no capping, was required to be considered carefully before

committing a substantial part of available spectrum. Further Hon'ble MOC&IT was

incorrect to say that

4.4.1 Ignoring the advice of Law Ministry and the Hon'ble Prime Minister, Hon'ble

MoC&IT therefore decided to go ahead with arbitrarily deciding that the cut off date

for issue of LoI would be advanced to 25th September 2007 and the applications

received would be decided on FCFS basis.

the issue of auction of spectrum was considered by the

Telecom Commission and was not recommended. As stated in the paragraph(4.2),

the recommendations of the TRAI ( August 2007) was never discussed in a meeting

of the full Telecom Commission between date of submission of the TRAI's

recommendations and date of the Hon'ble MoC&IT letter i.e. 2 November 2007.

On the same day through another communication the Hon'ble MoC&IT informed

the Hon'ble Prime minister that “the Department wanted to examine the

possibility of any other procedure in addition to the current procedure of allotment

of licences to process the huge number of applications. A few alternative

procedures as debated in the Department and also opined by few legal experts

were suggested by the Department of Telecom to Ministry of Law & Justice to

examine its legal tenability to avoid future legal complications, if any. Ministry of

Law and Justice, instead of examining the legal tenability of these alternative

procedures suggested referring the matter to Empowered Group of Ministers.

Since, generally new major policy decisions of a Department or inter-

departmental issues are referred to GoM, and needless to say that the present

issue related to procedures, the suggestion of Law Ministry is totally out of

context. Now, the Department has decided to continue with the existing policy

(first-come-first-served) for processing of applications received up to 25th

September 2007, i.e. the date when the news-item on announcement of cut-off

date appeared in the newspapers. The procedure for processing the remaining

applications will be decided at a later date, if any spectrum is left available after

processing the applications received up to 25th September 2007”.



BOX-3

Date Procedural Details

Hon'ble MoC&IT conveyed through press release that no application under UAS will be accepted after 01/10/2007.

Ministry accepted the Recommendations of TRAI. LoIs were issued to the Reliance Communications Ltd and two others for dual technology.

A Press release was issued stating that the TRAI's recommendations have been accepted by the DoT. Policy for the dual technology was also announced.

Ministry of Law & Justice (MLJ) was requested to communicate the opinion of the Ld Attorney General of India/Solicitor General of India on the procedure to be followed.

Opinion of the Hon'ble MLJ was received by DoT.

DoT decided that only the applications received up to 25/09/2007 shall be processed which were 232 in number.

Hon'ble PM wrote to Hon'ble MoC&IT to consider auctioning of spectrum and revision of entry fee in a fair and transparent manner.

Hon'ble MoC&IT wrote to Hon'ble PM that sufficient 2G spectrum available to cater to the requirement of few new operators and more no. of operator will increase tele-density and bring down the tariff.

Hon'ble MoC&IT again wrote to Hon'ble PM justifying the decision of amendment of cut off date and termed the suggestion of Ministry of Law and Justice for GOM as 'out of context'.

Hon'ble MoC&IT again wrote to Hon'ble PM regarding the personal discussion with Hon'ble PM and External Affairs Minister on various issues including issue of dual technology and issue of new licences.

Secretary DoT and Member (Finance) DoT retired.

Hon'ble PM acknowledged the letter dated 26/12/2007 sent by Hon'ble MoC&IT.

A meeting of full Telecom Commission was scheduled for 09.01.2008 to discuss issues of new licences and allocation of spectrum to existing as well as new players by auctions postponed to 15.01.2008.

Decision regarding cut off date being 25/09/2007 was conveyed through a Press Release in the afternoon of 10 January 2008.

Through a press release, companies who had submitted applications on or before 25 September 2007 were advised to depute their authorized representative at 3.30 PM on 10 January 2008 to collect response(s).

Out of 232 applications received up to cut off date 121 LoIs were issued to applicants found eligible.

All applicants communicated their acceptance.78 applicants complied with terms and conditions including submission of entry fee, PBG and FBG.

Remaining 43 applicants complied with terms and conditions.

All UAS licenses were issued to be effective from 25 January 2008.

24/09/2007

18/10/2007

19/10/2007

26/10/ 2007

1/11/2007

02/11/2007

02/11/2007

02/11/2007

02/11/2007

26/12/2007

31/12/2007

03/01/2008

09/01/2008

10/01/2008

10/01/2008

10/01/2008

10/01/2008

11/01/2008

25/01/2008

Chronology of Events


The MoF was insisting on the issue of inclusion of spectrum pricing in the ToR of GoM

constituted for spectrum vacation since early 2006. In June 2007, Finance Secretary had

informed the DoT that the matter had been discussed at Hon'ble Finance Minister's level

and Ministry felt that a sound policy on spectrum pricing was required. The Ministry again in

November 2007 questioned the sanctity of continuing with a price determined way back in

2001 without any indexation or current valuation and sought review of the matter. DoT,

conveniently quoting the 4 year old Cabinet decision of October 2003, justified to the MoF

that it was authorised to calculate the entry fee for licenses depending on the date of

payment, on the principles of TRAI recommendations of 2003 and that TRAI in 2007 had also

not recommended any revision. Agreeing with MoF's views, Member (F) of the DoT had also

sought (November 2007) an in-depth analysis of the issue prior to taking any further action

to which Secretary (DoT) also concurred. Hon'ble MoC&IT observed on the file

The action suggested that Hon'ble MoC&IT was not open to the idea of discussing and

deliberating the issues involved at appropriate levels even when there was a high risk of

huge revenue loss to the Government exchequer.

This is further corroborated by the fact that the date of the meeting of Telecom Commission

which was scheduled to discuss the issues relating to issue of pending applications for

licence and pricing of spectrum was postponed from 9 January 2008 to 15 January 2008.

Without Telecom Commission getting an opportunity to discuss the matter, 121 LoIs were

issued on 10 January 2008. The Hon'ble Finance Minister also held the view (15 January

2008) that “Spectrum is a scarce resource. The price for spectrum should be based on its

scarcity value and efficiency of usage and the most transparent method of allocating

spectrum would be through auction”. However, the Hon'ble Finance Minister after the issue

of 121 LOIs by the DoT suggested in January 2008 to treat the previous issue of licences as a

closed chapter and recommended that the price of spectrum be discovered through an

auction process in future.

The Government had long been aware that spectrum was a scarce natural resource which

needed to be priced appropriately so as to ensure its optimal utilisation. The entire

chronology of events as detailed in the Box and the manner in which it was handled, if seen

with the Hon'ble Finance Minister's proposal of January 2008, suggest that the DoT acted in

haste while issuing new UAS licences at a price discovered 7 years back, which deprived it of

an opportunity to discover the economic value of a scarce natural resource. The availability

of the spectrum is limited and the Government has to incur huge expenditure for getting it

“Officers

have neither up to date knowledge of UAS guidelines nor have bothered to carefully go

through file……..These types of continuous confusions observed on the file whoever be the

officer concerned does not show any legitimacy and integrity but only their vested

interest…….the matter of entry fee has been deliberated in the department, several times

in the light of various guidelines issued by the department and recommendations of TRAI

and accordingly decision was taken that entry fee need not be revised.”

Concerns of the MoF and Finance Wing of the DoT on continuance of entry fee fixed in 2001 were overlooked

4.5vacated from Defence authorities by

providing alternate media to them.

MoF should have insisted for a Cabinet

decision, in view of the following;

It was noted that on the issues of auction and allotment of 3G/BWA spectrum, MoF had

quoted the above two grounds for participating in the consultative process with the DoT.

The DoT informed (July 2010) that there was no undue haste in the issue of LOIs since a

decision to process applications for grant of UAS licence to those who applied up to 25.09.07

was taken on 2 November 2007 and reports were already appearing in newspapers about

the cut off date. The DoT also stated that pricing of spectrum was not on the agenda of the

Telecom Commission meeting which was scheduled for 15.01.2008. The reply of the DoT is

not tenable as they went ahead with the process of allocation of UAS licenses without any

deliberations either in the High Powered Telecom Commission or EGoM as suggested by the

Hon'ble MLJ. The DoT also gave a confusing and misleading reply to the Finance Secretary to

side track the valid issues raised by the Finance Secretary.

n

by the Cabinet in 2003 for calculation

of entry fee for migration of existing

operators (BSOs & CMSPs) to UASL

regime based on the formula given

by the TRAI (October 2003) as an

open-ended one was a wrong

interpretation of the DoT and particularly when Cabinet in the same decision had

defined the role of MoF in the matter of spectrum pricing.

n Government of India (Transaction of Business) Rules 1961 provided for necessity of

matter being placed before the Cabinet in case either involving financial implication

on which the Minister of Finance desires or a difference of opinion arises between

two or more Ministers

Treating the authorisation allowed


Who all were not in favour of hasty allotment of licenses without revision of spectrum prices?

PRIME MINISTER

MINISTER OF LAW AND JUSTICE

FINANCE SECRETARY

SECRETARY, DoT

MEMBER (FINANCE)

Multiple Activities on 10 January 20084.6

On 10 January 2008 afternoon, the DoT through the Press Information Bureau informed that

all eligible applicants who applied for UAS licences up to 25 September 2007 would be

issued LoIs. It was also mentioned in the press release that the DoT has been implementing a

policy of FCFS for the grant of UAS licences under which initially an application which is

received first will be processed first and thereafter if found eligible will be granted LoI and

then .”

This stipulation introduced for the first time by the DoT took away the relevance of the date

of application and grossly violated the sanctity and transparency of the FCFS policy being

followed hitherto by the DoT.

who so ever, complies with the condition of LoIs first will be granted UAS licence


The MoF was insisting on the issue of inclusion of spectrum pricing in the ToR of GoM

constituted for spectrum vacation since early 2006. In June 2007, Finance Secretary had

informed the DoT that the matter had been discussed at Hon'ble Finance Minister's level

and Ministry felt that a sound policy on spectrum pricing was required. The Ministry again in

November 2007 questioned the sanctity of continuing with a price determined way back in

2001 without any indexation or current valuation and sought review of the matter. DoT,

conveniently quoting the 4 year old Cabinet decision of October 2003, justified to the MoF

that it was authorised to calculate the entry fee for licenses depending on the date of

payment, on the principles of TRAI recommendations of 2003 and that TRAI in 2007 had also

not recommended any revision. Agreeing with MoF's views, Member (F) of the DoT had also

sought (November 2007) an in-depth analysis of the issue prior to taking any further action

to which Secretary (DoT) also concurred. Hon'ble MoC&IT observed on the file

The action suggested that Hon'ble MoC&IT was not open to the idea of discussing and

deliberating the issues involved at appropriate levels even when there was a high risk of

huge revenue loss to the Government exchequer.

This is further corroborated by the fact that the date of the meeting of Telecom Commission

which was scheduled to discuss the issues relating to issue of pending applications for

licence and pricing of spectrum was postponed from 9 January 2008 to 15 January 2008.

Without Telecom Commission getting an opportunity to discuss the matter, 121 LoIs were

issued on 10 January 2008. The Hon'ble Finance Minister also held the view (15 January

2008) that “Spectrum is a scarce resource. The price for spectrum should be based on its

scarcity value and efficiency of usage and the most transparent method of allocating

spectrum would be through auction”. However, the Hon'ble Finance Minister after the issue

of 121 LOIs by the DoT suggested in January 2008 to treat the previous issue of licences as a

closed chapter and recommended that the price of spectrum be discovered through an

auction process in future.

The Government had long been aware that spectrum was a scarce natural resource which

needed to be priced appropriately so as to ensure its optimal utilisation. The entire

chronology of events as detailed in the Box and the manner in which it was handled, if seen

with the Hon'ble Finance Minister's proposal of January 2008, suggest that the DoT acted in

haste while issuing new UAS licences at a price discovered 7 years back, which deprived it of

an opportunity to discover the economic value of a scarce natural resource. The availability

of the spectrum is limited and the Government has to incur huge expenditure for getting it

“Officers

have neither up to date knowledge of UAS guidelines nor have bothered to carefully go

through file……..These types of continuous confusions observed on the file whoever be the

officer concerned does not show any legitimacy and integrity but only their vested

interest…….the matter of entry fee has been deliberated in the department, several times

in the light of various guidelines issued by the department and recommendations of TRAI

and accordingly decision was taken that entry fee need not be revised.”

Concerns of the MoF and Finance Wing of the DoT on continuance of entry fee fixed in 2001 were overlooked

4.5vacated from Defence authorities by

providing alternate media to them.

MoF should have insisted for a Cabinet

decision, in view of the following;

It was noted that on the issues of auction and allotment of 3G/BWA spectrum, MoF had

quoted the above two grounds for participating in the consultative process with the DoT.

The DoT informed (July 2010) that there was no undue haste in the issue of LOIs since a

decision to process applications for grant of UAS licence to those who applied up to 25.09.07

was taken on 2 November 2007 and reports were already appearing in newspapers about

the cut off date. The DoT also stated that pricing of spectrum was not on the agenda of the

Telecom Commission meeting which was scheduled for 15.01.2008. The reply of the DoT is

not tenable as they went ahead with the process of allocation of UAS licenses without any

deliberations either in the High Powered Telecom Commission or EGoM as suggested by the

Hon'ble MLJ. The DoT also gave a confusing and misleading reply to the Finance Secretary to

side track the valid issues raised by the Finance Secretary.

n

by the Cabinet in 2003 for calculation

of entry fee for migration of existing

operators (BSOs & CMSPs) to UASL

regime based on the formula given

by the TRAI (October 2003) as an

open-ended one was a wrong

interpretation of the DoT and particularly when Cabinet in the same decision had

defined the role of MoF in the matter of spectrum pricing.

n Government of India (Transaction of Business) Rules 1961 provided for necessity of

matter being placed before the Cabinet in case either involving financial implication

on which the Minister of Finance desires or a difference of opinion arises between

two or more Ministers

Treating the authorisation allowed


Who all were not in favour of hasty allotment of licenses without revision of spectrum prices?

PRIME MINISTER

MINISTER OF LAW AND JUSTICE

FINANCE SECRETARY

SECRETARY, DoT

MEMBER (FINANCE)

Multiple Activities on 10 January 20084.6

On 10 January 2008 afternoon, the DoT through the Press Information Bureau informed that

all eligible applicants who applied for UAS licences up to 25 September 2007 would be

issued LoIs. It was also mentioned in the press release that the DoT has been implementing a

policy of FCFS for the grant of UAS licences under which initially an application which is

received first will be processed first and thereafter if found eligible will be granted LoI and

then .”

This stipulation introduced for the first time by the DoT took away the relevance of the date

of application and grossly violated the sanctity and transparency of the FCFS policy being

followed hitherto by the DoT.

who so ever, complies with the condition of LoIs first will be granted UAS licence


Audit found that in the draft press release, the DoT had proposed to maintain the inter-se

seniority of applicants based on their date of applications, if more than one applicant

complied with LOI conditions on the same day. However, the Hon'ble MoC&IT personally

deleted this provision (Annexure I) from the press release observing that the proposal was

while at the same time conveniently forgetting

that the basic stipulation

was also a new stipulation being added for the first time.

4.6.1 Out of 232 applications received from 21 applicant Companies till the changed cut

off date, 121 applications from 16 applicant Companies were found eligible. The

DoT issued another press release on the asking all applicants to

assemble at the DoT Hqrs within forty five minutes (i.e. by ) to collect letters

in response of their application. All the eligible applicants collected their LoIs and

acceptance of 120 applications was received on the same day. Compliance of terms

and conditions of LoI was also made for 78 applications on the same day and the

remaining on the following day. The change in the method for applying FCFS criteria

from receipt of application to compliance of LoI made the applicants rush to comply

with the LoI conditions within a few hours and in as less as an hour in respect of

24 service areas. (Annexure II). It would therefore be evident that though the DoT

took 100-550 days to process the applications as against prescribed 30 days under

its so-called FCFS policy, it gave not even an hour to the applicants to assemble at the

DoT premises to collect LOIs and less than half a day to comply with the LOI

conditions.

4.6.2 13 Applicants submitted pre-dated demand drafts

It was noticed that 13 applicants were even ready with Demand Drafts (DDs) drawn

on dates prior to the notification of cut off date.(Annexure III) An applicant also

submitted the Performance Bank Guarantee (PBG) and Financial Bank Guarantee

(FPG) of the Punjab National Bank (Annexure IV) prepared on 10 January 2008 in

Mumbai to Ministry on the same day. Evidently, these applicants, had advance

information about the issue of this notification by the DoT which enabled them to

take appropriate advance action to draw the DDs and prepare other relevant

documents for complying with the LoI conditions in spite of the changed time limit

for compliance from 15 days to about half a day.

4.6.3 DOT's own “FCFS” Policy not followed

Audit noted that though the DoT had decided to follow the policy of the first-come-

first-served (FCFS) and the Hon'ble MOC&IT in his communication dated 2

November 2007 had informed the Hon'ble Prime Minister that the processing of

applications was to be on FCFS basis, the DoT deviated from the FCFS policy in letter

& spirit.

“not necessary as it is a new stipulation”

“who so ever, complies with the condition of LoIs first will be

granted UAS licence”

same day (2.45 p.m)

3.30 p.m

To start with, Hon'ble MoC&IT

arbitrarily decided to issue Letter of

Intents (LoIs) simultaneously to all

applicants, who had submitted their

applications between March 2006 and

25 September 2007 thereby depriving

the applicants, who had submitted

their applications earlier, of their

seniority and resultant claim to get the

LoIs first.

As a

result, applicants who had submitted the applications even a year later were given

the chance of getting precedence over earlier applicants if they could comply with

the LoIs conditions earlier. The last nail in the coffin of transparency and objectivity

of the FCFS policy was dealt by selectively leaking the date of issue of LoIs to a few

applicants as a result of which, they were ready with pre-dated demand drafts of

thousands of crores of rupees prior to the date of issue of the Press release calling for

applicants to collect the LoIs from DoT.

Thus the entire process of allotment of UAS licenses in January 2008 lacked

transparency and appeared to have been done with the objective of favouring a few

firms over others. As a result thereof, Swan Telecom Pvt Ltd, which had submitted

the application on 2 March 2007, was given the spectrum for the Delhi service area

on 28 August 2008 itself while Spice Communications Ltd which had submitted their

application in August 2006 has not yet been given (March 2010), spectrum for Delhi

service area. Similarly, for Maharashtra service area also, Spice Communications Ltd

(Date of application- 31 August 2006) got the spectrum in May 2009 while Unitech

and Videocon got the spectrum much earlier in September 2008 itself though they

had submitted their applications for UAS licenses more than a year later in

September 2007. Idea Cellular Limited (Date of Applications- 26 June 2006) also got

the spectrum in May 2009 while Unitech (date of Applications – 24 September 2007)

got the spectrum in September 2008.

4.6.4 DoT, in response to the audit observation informed (July 2010) that the draft press

release was changed because it was contrary to the policy of FCFS of the DoT and the

DoT had not deviated from the declared policy. The contention of the DoT appeared

to be untenable as in the FCFS system adopted by the DoT where determination of

priority of applications was dependent on the date of its receipt in the Central

Registry of the DoT, the date of compliance to LOI's conditions was of secondary

importance and was to be considered only when an applicant company did not

Thereafter the importance

of date of submission of application in

the FCFS Policy was altogether

removed by giving precedence to the

date of compliance to the LoIs.


First-Come-First-Served (FCFS) was the

principle internally adopted in DoT for

allocation of spectrum which was

extended to issue of new UAS licenses.

Under the FCFS system all applications

are received first in the Central Registry

(CR) Section of DoT where date of

receipt and serial numbers are posted

on it. Priority/seniority of applications

is determined based on this date of

receipt in the CR section.


Audit found that in the draft press release, the DoT had proposed to maintain the inter-se

seniority of applicants based on their date of applications, if more than one applicant

complied with LOI conditions on the same day. However, the Hon'ble MoC&IT personally

deleted this provision (Annexure I) from the press release observing that the proposal was

while at the same time conveniently forgetting

that the basic stipulation

was also a new stipulation being added for the first time.

4.6.1 Out of 232 applications received from 21 applicant Companies till the changed cut

off date, 121 applications from 16 applicant Companies were found eligible. The

DoT issued another press release on the asking all applicants to

assemble at the DoT Hqrs within forty five minutes (i.e. by ) to collect letters

in response of their application. All the eligible applicants collected their LoIs and

acceptance of 120 applications was received on the same day. Compliance of terms

and conditions of LoI was also made for 78 applications on the same day and the

remaining on the following day. The change in the method for applying FCFS criteria

from receipt of application to compliance of LoI made the applicants rush to comply

with the LoI conditions within a few hours and in as less as an hour in respect of

24 service areas. (Annexure II). It would therefore be evident that though the DoT

took 100-550 days to process the applications as against prescribed 30 days under

its so-called FCFS policy, it gave not even an hour to the applicants to assemble at the

DoT premises to collect LOIs and less than half a day to comply with the LOI

conditions.

4.6.2 13 Applicants submitted pre-dated demand drafts

It was noticed that 13 applicants were even ready with Demand Drafts (DDs) drawn

on dates prior to the notification of cut off date.(Annexure III) An applicant also

submitted the Performance Bank Guarantee (PBG) and Financial Bank Guarantee

(FPG) of the Punjab National Bank (Annexure IV) prepared on 10 January 2008 in

Mumbai to Ministry on the same day. Evidently, these applicants, had advance

information about the issue of this notification by the DoT which enabled them to

take appropriate advance action to draw the DDs and prepare other relevant

documents for complying with the LoI conditions in spite of the changed time limit

for compliance from 15 days to about half a day.

4.6.3 DOT's own “FCFS” Policy not followed

Audit noted that though the DoT had decided to follow the policy of the first-come-

first-served (FCFS) and the Hon'ble MOC&IT in his communication dated 2

November 2007 had informed the Hon'ble Prime Minister that the processing of

applications was to be on FCFS basis, the DoT deviated from the FCFS policy in letter

& spirit.

“not necessary as it is a new stipulation”

“who so ever, complies with the condition of LoIs first will be

granted UAS licence”

same day (2.45 p.m)

3.30 p.m

To start with, Hon'ble MoC&IT

arbitrarily decided to issue Letter of

Intents (LoIs) simultaneously to all

applicants, who had submitted their

applications between March 2006 and

25 September 2007 thereby depriving

the applicants, who had submitted

their applications earlier, of their

seniority and resultant claim to get the

LoIs first.

As a

result, applicants who had submitted the applications even a year later were given

the chance of getting precedence over earlier applicants if they could comply with

the LoIs conditions earlier. The last nail in the coffin of transparency and objectivity

of the FCFS policy was dealt by selectively leaking the date of issue of LoIs to a few

applicants as a result of which, they were ready with pre-dated demand drafts of

thousands of crores of rupees prior to the date of issue of the Press release calling for

applicants to collect the LoIs from DoT.

Thus the entire process of allotment of UAS licenses in January 2008 lacked

transparency and appeared to have been done with the objective of favouring a few

firms over others. As a result thereof, Swan Telecom Pvt Ltd, which had submitted

the application on 2 March 2007, was given the spectrum for the Delhi service area

on 28 August 2008 itself while Spice Communications Ltd which had submitted their

application in August 2006 has not yet been given (March 2010), spectrum for Delhi

service area. Similarly, for Maharashtra service area also, Spice Communications Ltd

(Date of application- 31 August 2006) got the spectrum in May 2009 while Unitech

and Videocon got the spectrum much earlier in September 2008 itself though they

had submitted their applications for UAS licenses more than a year later in

September 2007. Idea Cellular Limited (Date of Applications- 26 June 2006) also got

the spectrum in May 2009 while Unitech (date of Applications – 24 September 2007)

got the spectrum in September 2008.

4.6.4 DoT, in response to the audit observation informed (July 2010) that the draft press

release was changed because it was contrary to the policy of FCFS of the DoT and the

DoT had not deviated from the declared policy. The contention of the DoT appeared

to be untenable as in the FCFS system adopted by the DoT where determination of

priority of applications was dependent on the date of its receipt in the Central

Registry of the DoT, the date of compliance to LOI's conditions was of secondary

importance and was to be considered only when an applicant company did not

Thereafter the importance

of date of submission of application in

the FCFS Policy was altogether

removed by giving precedence to the

date of compliance to the LoIs.


First-Come-First-Served (FCFS) was the

principle internally adopted in DoT for

allocation of spectrum which was

extended to issue of new UAS licenses.

Under the FCFS system all applications

are received first in the Central Registry

(CR) Section of DoT where date of

receipt and serial numbers are posted

on it. Priority/seniority of applications

is determined based on this date of

receipt in the CR section.


comply with the LoI's conditions within stipulated period of 15 days. Amendment in

the draft press release by the Hon'ble MoC&IT personally without any sound and

valid reason took away the sanctity of the date of application and the date of

compliance of LoI's conditions became the date of priority which was not the

accepted principle for FCFS being followed by the DoT till then. It was for the first

time in the history of the DoT that the date of compliance of LoI was considered as

the criterion for the issue of UAS licence.

4.6.5

The DoT also stated (July 2010) that shortage of spectrum for GSM

services necessitated the need for limiting the number of licenses in the first phase

and the cut off date was fixed to identify them. Explaining the reason for fixing 25

September 2007 as the cut off date it was replied that in the absence of the

possibility of issuing licence and spectrum to all the applicants it was decided by the

DoT that the most appropriate way to divide the applicants into two homogenous

groups was to classify them on the basis of the date of requests i.e., applications

received prior to date of publication of press release and new applications received

after it and any other date for grant of LoI in the first phase would have been

arbitrary. Further, neither the cut-off date was advanced nor the applications for

grant of UAS licences had been rejected. The DoT also added that since the FCFS

policy has been followed without interruption, no application beyond 25.09.07 was

either prejudiced or aggrieved, adding that all eligible applicants who applied till

25.09.2007 knew that their applications were being processed by the department

for grant of licence.

4.6.6 The response of the DoT is not tenable because if availability of spectrum was the

criteria for deciding the number of licenses to be issued then fixing a cut off date for

issue of LOIs had no relevance since the senior most applicants, depending on their

date of application should have been the natural choice according to the FCFS

followed by the DoT. The admission of the DoT that some of the applicants knew

about the cut off date decided in the DoT, even before it was notified through a Press

release on 10th January 2008, only confirms that the processing of applications

lacked fairness and transparency.

4.6.7 The process followed for the allotment of UAS licenses in 2007-08 lacked

transparency and objectivity and has eroded the credibility of the DoT. It has denied

level playing field to the applicant companies. The frequent changes in FCFS criteria,

simultaneous issue of LoIs to all applicants on the same day and a large number of

applicants complying with detailed requirements of LoI (for which 15 days are

allowed as per procedure) within hours: all reflect a deliberate and unhealthy haste

on part of the DoT in going ahead with the issue of licences which tended to favour

applicants who could proactively anticipate such procedural changes well in time.

DoT, quoting extensively from a letter written by the Hon'ble MoC&IT to the

Hon'ble Prime Minister, stated that the Hon'ble Prime Minister was apprised of all

the decisions taken by the DoT and the letter was acknowledged by the Hon'ble

Prime Minister.

This unusual haste, in spite of repeated concerns expressed by different agencies

and by the senior officers within the Ministry raises doubts regarding the intention

of the Hon'ble MoC&IT, in going ahead with issue of licences in an arbitrary manner

without letting the matter be debated or discussed and considered at appropriate

levels. Thus the hasty actions taken by the DoT in the issue of new UAS licences and

the failure of the Ministry of Finance in prevailing on the DoT led to 2G spectrum

being doled out at a price discovered 7 years back.


Issue of UAS Licence to ineligible applicants4.7

4.7.1 The broad guidelines of the DoT (December 2005) details the eligibility conditions

for grant of Unified Access Services Licence in a Service Area. Important eligibility

conditions of the guidelines are

n The applicant must be an Indian company, registered under the Indian

Companies Act'1956.

n The Company shall acknowledge compliance with the licence agreement as

a part of Memorandum of Association of the Company. Any violation of the

licence agreement shall automatically lead to the Company being unable to

carry on its business in this regard. The duty to comply with the licence

agreement shall also be made a part of Articles of Association.

n The applicant company shall have a minimum paid up equity capital of the

amount as prescribed in the guidelines depending on the Service Area(s)

they are applying for as on the date of the application and shall submit a

certificate to this effect by the applicant's Company Secretary along with

application.

n A promoter company/ legal person cannot have stakes in more than one

Licensee Company for the same service area. No single company/ legal

How was the sanctity of DoT's own FCFS policy violated?

First four decisions were taken by the Hon'ble MoC&IT himself.

n Abrupt fixation of arbitrary cut off dates in September 2007 for the receipt of applications;

n Clubbing all applicants together and issuing LoIs simultaneously;

n Change in the method for applying FCFS criteria from the date of receipt of application to

date of compliance of LoIs;

n Proposal to maintain the inter-se seniority of applicants based on their date of applications, if

more than one applicant complied with LoI conditions on the same day was rejected;

n Leaking the information about date of issuing LoIs to select applicants, thereby enabling

them to keep Demand Drafts ready for payment of entry fee, FPG/PBG.


comply with the LoI's conditions within stipulated period of 15 days. Amendment in

the draft press release by the Hon'ble MoC&IT personally without any sound and

valid reason took away the sanctity of the date of application and the date of

compliance of LoI's conditions became the date of priority which was not the

accepted principle for FCFS being followed by the DoT till then. It was for the first

time in the history of the DoT that the date of compliance of LoI was considered as

the criterion for the issue of UAS licence.

4.6.5

The DoT also stated (July 2010) that shortage of spectrum for GSM

services necessitated the need for limiting the number of licenses in the first phase

and the cut off date was fixed to identify them. Explaining the reason for fixing 25

September 2007 as the cut off date it was replied that in the absence of the

possibility of issuing licence and spectrum to all the applicants it was decided by the

DoT that the most appropriate way to divide the applicants into two homogenous

groups was to classify them on the basis of the date of requests i.e., applications

received prior to date of publication of press release and new applications received

after it and any other date for grant of LoI in the first phase would have been

arbitrary. Further, neither the cut-off date was advanced nor the applications for

grant of UAS licences had been rejected. The DoT also added that since the FCFS

policy has been followed without interruption, no application beyond 25.09.07 was

either prejudiced or aggrieved, adding that all eligible applicants who applied till

25.09.2007 knew that their applications were being processed by the department

for grant of licence.

4.6.6 The response of the DoT is not tenable because if availability of spectrum was the

criteria for deciding the number of licenses to be issued then fixing a cut off date for

issue of LOIs had no relevance since the senior most applicants, depending on their

date of application should have been the natural choice according to the FCFS

followed by the DoT. The admission of the DoT that some of the applicants knew

about the cut off date decided in the DoT, even before it was notified through a Press

release on 10th January 2008, only confirms that the processing of applications

lacked fairness and transparency.

4.6.7 The process followed for the allotment of UAS licenses in 2007-08 lacked

transparency and objectivity and has eroded the credibility of the DoT. It has denied

level playing field to the applicant companies. The frequent changes in FCFS criteria,

simultaneous issue of LoIs to all applicants on the same day and a large number of

applicants complying with detailed requirements of LoI (for which 15 days are

allowed as per procedure) within hours: all reflect a deliberate and unhealthy haste

on part of the DoT in going ahead with the issue of licences which tended to favour

applicants who could proactively anticipate such procedural changes well in time.

DoT, quoting extensively from a letter written by the Hon'ble MoC&IT to the

Hon'ble Prime Minister, stated that the Hon'ble Prime Minister was apprised of all

the decisions taken by the DoT and the letter was acknowledged by the Hon'ble

Prime Minister.

This unusual haste, in spite of repeated concerns expressed by different agencies

and by the senior officers within the Ministry raises doubts regarding the intention

of the Hon'ble MoC&IT, in going ahead with issue of licences in an arbitrary manner

without letting the matter be debated or discussed and considered at appropriate

levels. Thus the hasty actions taken by the DoT in the issue of new UAS licences and

the failure of the Ministry of Finance in prevailing on the DoT led to 2G spectrum

being doled out at a price discovered 7 years back.


Issue of UAS Licence to ineligible applicants4.7

4.7.1 The broad guidelines of the DoT (December 2005) details the eligibility conditions

for grant of Unified Access Services Licence in a Service Area. Important eligibility

conditions of the guidelines are

n The applicant must be an Indian company, registered under the Indian

Companies Act'1956.

n The Company shall acknowledge compliance with the licence agreement as

a part of Memorandum of Association of the Company. Any violation of the

licence agreement shall automatically lead to the Company being unable to

carry on its business in this regard. The duty to comply with the licence

agreement shall also be made a part of Articles of Association.

n The applicant company shall have a minimum paid up equity capital of the

amount as prescribed in the guidelines depending on the Service Area(s)

they are applying for as on the date of the application and shall submit a

certificate to this effect by the applicant's Company Secretary along with

application.

n A promoter company/ legal person cannot have stakes in more than one

Licensee Company for the same service area. No single company/ legal

How was the sanctity of DoT's own FCFS policy violated?

First four decisions were taken by the Hon'ble MoC&IT himself.

n Abrupt fixation of arbitrary cut off dates in September 2007 for the receipt of applications;

n Clubbing all applicants together and issuing LoIs simultaneously;

n Change in the method for applying FCFS criteria from the date of receipt of application to

date of compliance of LoIs;

n Proposal to maintain the inter-se seniority of applicants based on their date of applications, if

more than one applicant complied with LoI conditions on the same day was rejected;

n Leaking the information about date of issuing LoIs to select applicants, thereby enabling

them to keep Demand Drafts ready for payment of entry fee, FPG/PBG.


person, either directly or through its associates, shall have substantial

equity holding in more than one Licensee Company in the same service area

for the Access Services namely; Basic, Cellular and Unified Access Service.

'Substantial Equity' was defined as equity of 10% or more.

n The applicant and promoters of the applicant company should have a

combined net-worth of amount as prescribed in the guidelines depending

on the service Area(s) they are applying for. The net-worth of only those

promoters shall be counted, who have at least 10 % equity stake or more in

the total equity of the company.

n In case the applicant is found to be not eligible for the grant of licence for

Unified Access Service, the applicant shall be informed accordingly.

Thereafter the applicant is permitted to file a fresh application if so desired.

n Certified copy of Certificate of Registration along with Articles of Association

and Memorandum of Understanding. (Company Secretary to certify the

copy);

n Paid up capital as on the date of application (Certificate from Company

Secretary certifying the paid up capital to be provided.);

n Details/para no. of Memorandum of Association of Company for

compliance to Clause 5.G (iii) of guidelines dated 14.12.2005;

n Power of Attorney by Resolution of Board of Directors that the person

signing the application is an authorized signatory.

Each applicant Company was required to provide inter alia following information/

documents for each service area separately:-

The Applicant company was also required to give an undertaking to the effect that if

the application was found to be incomplete in any respect and/or if found with

conditional compliance, the same was to be summarily rejected. The applicant was

also required to certify that if at any time, any averments made or information

furnished for obtaining the licence was found incorrect, then his application and the

licence if granted thereto on the basis of such application shall be cancelled.

Section-18(2) of the Companies Act, 1956 stipulates that a certificate of registration

by the Registrar of Companies shall be conclusive evidence that all the requirements

of the Act with respect to the alteration and the confirmation thereof has been

complied with, and henceforth the memorandum so as altered shall be the

Memorandum of the Company. Section 19(1) provides that no alternation will have

any effect until it has been duly registered in accordance with the relevant

provisions of the Act.


4.7.2

Ministry of Corporate Affairs, Government of India, New Delhi, revealed that as

many as 85 Licenses out of the 122 new licenses issued to 13 Companies in 2008

were granted to those companies which did not satisfy the eligibility conditions

prescribed by the DoT. All 85 licenses were given to companies which did not have

the stipulated paid up capital at the time of application. Further, 45 out of these 85

licenses were issued to companies who failed to satisfy conditions of main object

clause in their Memorandum of Association. Details are discussed below:

Verification of the files of the DoT and public documents accessed from the

4.7.3

Six newly incorporated applicant companies* belonging to

had submitted their applications for grant of UAS licenses for 20

service areas to the DoT on 24 September 2007. Along with their applications, these

companies had submitted copies of their Memorandum of Association/ Articles of

Association (MOA/AOA) indicating the main object clause of Telecom Sector thereby

claiming to meet the eligibility criterion for the grant of UAS licence.

On verification, it was revealed that all these companies had suppressed the fact of

conditional nature of certification of registration done by the Registrar of

Companies (ROC) on 20 September 2007 while registering the alterations in the

main object clause in the MOA/AOA of these Companies. The ROC while certifying

the alteration of the main object clauses of all six companies had stated that the

Since in terms of

Section 21 of the Companies Act 1956, the change of name of the Company could be

done only with the approval of the “Central Government signified in writing”, the

condition of the change of name of these applicant Companies was met in May 2008

only. As a result, all these six new companies were registered afresh with the new

names in May 2008 by the ROC. Hence the alteration of the MOA of these

Companies became effective in May 2008 only. As a result thereof, the MOA of these

companies did not permit them to operate in the telecom sector on the date of

application i.e. 24 September 2007. Hence, they were ineligible for the grant of UAS

licenses.

These six companies had suppressed the fact of conditional certification of the

alterations in the MOA/AOA by the ROC while submitting their applications for UAS

licence on 24 September 2007. All these companies also misrepresented the altered

MOA/AOA as the original MOA/AOA in their applications before DOT. The

submission of the altered MOA/AOA of the Companies without full disclosure of the

factual position of the alteration of the main object clause in the MOA/AOA and their

conditional registration by the ROC was a fraudulent act of these six companies with

the malafide intentions of obtaining the UAS licenses for 20 service areas by

misleading the DoT.

Misrepresentation of facts by the nine real estate companies

Unitech Group (Brand

name Uninor)

certificate was subject to the change of name of the Company.

* Unitech Builders & Estates Pvt. Ltd, Hudson Properties Pvt. Ltd, Nahan Properties Pvt. Ltd, Aska Projects Ltd, Volga Properties Pvt. Ltd, Adonis Projects Pvt. Ltd


person, either directly or through its associates, shall have substantial

equity holding in more than one Licensee Company in the same service area

for the Access Services namely; Basic, Cellular and Unified Access Service.

'Substantial Equity' was defined as equity of 10% or more.

n The applicant and promoters of the applicant company should have a

combined net-worth of amount as prescribed in the guidelines depending

on the service Area(s) they are applying for. The net-worth of only those

promoters shall be counted, who have at least 10 % equity stake or more in

the total equity of the company.

n In case the applicant is found to be not eligible for the grant of licence for

Unified Access Service, the applicant shall be informed accordingly.

Thereafter the applicant is permitted to file a fresh application if so desired.

n Certified copy of Certificate of Registration along with Articles of Association

and Memorandum of Understanding. (Company Secretary to certify the

copy);

n Paid up capital as on the date of application (Certificate from Company

Secretary certifying the paid up capital to be provided.);

n Details/para no. of Memorandum of Association of Company for

compliance to Clause 5.G (iii) of guidelines dated 14.12.2005;

n Power of Attorney by Resolution of Board of Directors that the person

signing the application is an authorized signatory.

Each applicant Company was required to provide inter alia following information/

documents for each service area separately:-

The Applicant company was also required to give an undertaking to the effect that if

the application was found to be incomplete in any respect and/or if found with

conditional compliance, the same was to be summarily rejected. The applicant was

also required to certify that if at any time, any averments made or information

furnished for obtaining the licence was found incorrect, then his application and the

licence if granted thereto on the basis of such application shall be cancelled.

Section-18(2) of the Companies Act, 1956 stipulates that a certificate of registration

by the Registrar of Companies shall be conclusive evidence that all the requirements

of the Act with respect to the alteration and the confirmation thereof has been

complied with, and henceforth the memorandum so as altered shall be the

Memorandum of the Company. Section 19(1) provides that no alternation will have

any effect until it has been duly registered in accordance with the relevant

provisions of the Act.


4.7.2

Ministry of Corporate Affairs, Government of India, New Delhi, revealed that as

many as 85 Licenses out of the 122 new licenses issued to 13 Companies in 2008

were granted to those companies which did not satisfy the eligibility conditions

prescribed by the DoT. All 85 licenses were given to companies which did not have

the stipulated paid up capital at the time of application. Further, 45 out of these 85

licenses were issued to companies who failed to satisfy conditions of main object

clause in their Memorandum of Association. Details are discussed below:

Verification of the files of the DoT and public documents accessed from the

4.7.3

Six newly incorporated applicant companies* belonging to

had submitted their applications for grant of UAS licenses for 20

service areas to the DoT on 24 September 2007. Along with their applications, these

companies had submitted copies of their Memorandum of Association/ Articles of

Association (MOA/AOA) indicating the main object clause of Telecom Sector thereby

claiming to meet the eligibility criterion for the grant of UAS licence.

On verification, it was revealed that all these companies had suppressed the fact of

conditional nature of certification of registration done by the Registrar of

Companies (ROC) on 20 September 2007 while registering the alterations in the

main object clause in the MOA/AOA of these Companies. The ROC while certifying

the alteration of the main object clauses of all six companies had stated that the

Since in terms of

Section 21 of the Companies Act 1956, the change of name of the Company could be

done only with the approval of the “Central Government signified in writing”, the

condition of the change of name of these applicant Companies was met in May 2008

only. As a result, all these six new companies were registered afresh with the new

names in May 2008 by the ROC. Hence the alteration of the MOA of these

Companies became effective in May 2008 only. As a result thereof, the MOA of these

companies did not permit them to operate in the telecom sector on the date of

application i.e. 24 September 2007. Hence, they were ineligible for the grant of UAS

licenses.

These six companies had suppressed the fact of conditional certification of the

alterations in the MOA/AOA by the ROC while submitting their applications for UAS

licence on 24 September 2007. All these companies also misrepresented the altered

MOA/AOA as the original MOA/AOA in their applications before DOT. The

submission of the altered MOA/AOA of the Companies without full disclosure of the

factual position of the alteration of the main object clause in the MOA/AOA and their

conditional registration by the ROC was a fraudulent act of these six companies with

the malafide intentions of obtaining the UAS licenses for 20 service areas by

misleading the DoT.

Misrepresentation of facts by the nine real estate companies

Unitech Group (Brand

name Uninor)

certificate was subject to the change of name of the Company.

* Unitech Builders & Estates Pvt. Ltd, Hudson Properties Pvt. Ltd, Nahan Properties Pvt. Ltd, Aska Projects Ltd, Volga Properties Pvt. Ltd, Adonis Projects Pvt. Ltd


4.7.3.1 Azare Properties Limited and Unitech Infrastructures Private Limited (Brand

name Uninor) also misrepresented the altered MOA/AOA as the original

MOA/AOA along with their applications to the DoT. Further they suppressed the

fact that alterations had not been registered by the ROC as yet on the date of

submission of their application. The ROC while certifying the alteration of the

main object clauses in the MOA/AOA of these companies on 9th and 5th October

2007 respectively had also directed that the certificate was subject to the change

of name of the Company. The directive of the ROC was complied with only in May

2008 and thus the alteration of the MOA of these Companies became effective in

May 2008 only. As a result thereof, the MOA of these companies did not permit

them to operate in the telecom sector on the date of application i.e. 24 September

2007. Hence, they were also ineligible for the grant of UAS licenses.

Further, the submission of the altered MOA/AOA of the Companies as the original

MOA/AOA along with their applications to the DoT without full disclosure of the

alteration of the main object clause in the MOA/AOA and their non registration by

the ROC was of the nature of a fraudulent act of these two companies for

obtaining the UAS licenses for 2 service areas by misleading the DOT.

4.7.3.2 Allianz Infratech Private Limited (Merged with Etisalat DB Telecom Private

Limited), in their applications to the DoT on 5 September 2007 submitted the

MOA/AOA of the company, which didn't include the telecom sector in their main

object clause. Hence the application should have been rejected forthwith. Even

the alteration in the main object clause of the MOA of the Company was certified

by the ROC on 26 October 2007 only. Thus they were also not eligible for grant of

UAS licence on the date of submission of their application in September 2007.

4.7.3.3

Shipping Stop Dot Com (India) Private Limited (later on changed to Loop Telecom

Private Limited) also submitted their applications for grant of UAS licenses for 21

service areas on 3 September 2007 to the DoT without disclosing the fact of non

registration of alteration of the main object clauses in the MOA/AOA with the ROC

as on the date of the application. The company had changed the main object

clauses in their MOA/AOA so as to include the telecom sector in their MOA/AOA

but these alterations were registered by the ROC on 28 September 2007 only. Thus

they were also not eligible for grant of UAS licence on the date of submission of

their application in September 2007.

Further, the submission of the altered MOA of the Company by the Loop Telecom

Private Limited suppressing the fact of non registration of the alterations in the

main object clause of their MOA/AOA by the ROC on the date of application was

also in the nature of a fraudulent act with the intention of fulfilling the eligibility

criterion prescribed for UAS licenses.

Computer Software Company also misrepresented facts


4.7.4

Paid up capital of the applying Company was one of the important conditions

prescribed for obtaining a UAS Licence. The broad guidelines of the DoT (December

2005) prescribe that the applicant company shall have a minimum paid up equity

capital of ̀ 3-10 crore depending on the Service Area(s) (Service Areas A- ̀ 10 crore,

B- ` 5 crore and C - ` 3 crore) as on the date of the application and shall submit a

certificate to this effect by the applicant's Company Secretary along with application.

Further the Companies Act 1956 prescribes the procedure to be followed for

increase in the authorised share capital of a company. Only after authorised share

capital is increased and registered with ROC, the procedure for increasing the Paid up

capital could be undertaken by a registered Company.

False and fictitious claims of higher Paid up Capital by 13 Companies

4.7.4.1 13 Companies did not have the requisite Paid up Capital

13 Applicant Companies, which had applied for 123 UAS licenses and were

granted 85 UAS licenses, did not have the requisite authorised share capital on the

date of submission of the applications. Hence the question of their meeting the

eligibility criterion of the Paid up capital as on the date of application did not arise.

Of these, eight applicants* belonging to Unitech Group (Brand name Uninor) had

been incorporated in August-September 2007 with an authorised share capital of

` 5 lakh each. All these eight companies passed the special resolutions for increase

in the authorised share capital between 2 PM to 5 PM on 20 September 2007 in the

extra-ordinary general meetings of the respective companies and deposited the

requisite stamp duties on 3 October 2007 for increase in the authorised share

capital. After they submitted the requisite applications along with the proof of

payment of stamp duties on 5 October 2007, the certificate of the registration of

the increase in the authorised share capital was issued by the ROC only on 8/11

October 2007. Thus the claim of the higher paid up capital of these companies on

the date of submission i.e. 24 September and the supporting certificates of the

company secretaries of these companies submitted along with their applications

was false and fictitious.

4.7.4.2 Another Company Allianz Infratech Private Limited, in their applications to the

DoT on 5 September 2007 claimed the paid up capital of ` 10 crore as on the date

of application.

Scrutiny of records by Audit revealed that the paid up share capital of this

company as on the date of application was ̀ 5 lakh only. Though they claimed that

they had increased the authorised share capital to ` 10 crore through the special

resolution on 1 September 2007 in the extra-ordinary general meetings of the

company, verification of the records revealed that they deposited the requisite

* Unitech Infrastructure Pvt. Ltd., Unitech Builders & Estates Pvt. Ltd., Azare Properties Ltd, Hudson Properties Pvt. Ltd., Nahan Properties Pvt. Ltd.,Aska Projects Ltd,Volga Properties Pvt. Ltd., Adonis Projects Pvt. Ltd.


4.7.3.1 Azare Properties Limited and Unitech Infrastructures Private Limited (Brand

name Uninor) also misrepresented the altered MOA/AOA as the original

MOA/AOA along with their applications to the DoT. Further they suppressed the

fact that alterations had not been registered by the ROC as yet on the date of

submission of their application. The ROC while certifying the alteration of the

main object clauses in the MOA/AOA of these companies on 9th and 5th October

2007 respectively had also directed that the certificate was subject to the change

of name of the Company. The directive of the ROC was complied with only in May

2008 and thus the alteration of the MOA of these Companies became effective in

May 2008 only. As a result thereof, the MOA of these companies did not permit

them to operate in the telecom sector on the date of application i.e. 24 September

2007. Hence, they were also ineligible for the grant of UAS licenses.

Further, the submission of the altered MOA/AOA of the Companies as the original

MOA/AOA along with their applications to the DoT without full disclosure of the

alteration of the main object clause in the MOA/AOA and their non registration by

the ROC was of the nature of a fraudulent act of these two companies for

obtaining the UAS licenses for 2 service areas by misleading the DOT.

4.7.3.2 Allianz Infratech Private Limited (Merged with Etisalat DB Telecom Private

Limited), in their applications to the DoT on 5 September 2007 submitted the

MOA/AOA of the company, which didn't include the telecom sector in their main

object clause. Hence the application should have been rejected forthwith. Even

the alteration in the main object clause of the MOA of the Company was certified

by the ROC on 26 October 2007 only. Thus they were also not eligible for grant of

UAS licence on the date of submission of their application in September 2007.

4.7.3.3

Shipping Stop Dot Com (India) Private Limited (later on changed to Loop Telecom

Private Limited) also submitted their applications for grant of UAS licenses for 21

service areas on 3 September 2007 to the DoT without disclosing the fact of non

registration of alteration of the main object clauses in the MOA/AOA with the ROC

as on the date of the application. The company had changed the main object

clauses in their MOA/AOA so as to include the telecom sector in their MOA/AOA

but these alterations were registered by the ROC on 28 September 2007 only. Thus

they were also not eligible for grant of UAS licence on the date of submission of

their application in September 2007.

Further, the submission of the altered MOA of the Company by the Loop Telecom

Private Limited suppressing the fact of non registration of the alterations in the

main object clause of their MOA/AOA by the ROC on the date of application was

also in the nature of a fraudulent act with the intention of fulfilling the eligibility

criterion prescribed for UAS licenses.

Computer Software Company also misrepresented facts


4.7.4

Paid up capital of the applying Company was one of the important conditions

prescribed for obtaining a UAS Licence. The broad guidelines of the DoT (December

2005) prescribe that the applicant company shall have a minimum paid up equity

capital of ̀ 3-10 crore depending on the Service Area(s) (Service Areas A- ̀ 10 crore,

B- ` 5 crore and C - ` 3 crore) as on the date of the application and shall submit a

certificate to this effect by the applicant's Company Secretary along with application.

Further the Companies Act 1956 prescribes the procedure to be followed for

increase in the authorised share capital of a company. Only after authorised share

capital is increased and registered with ROC, the procedure for increasing the Paid up

capital could be undertaken by a registered Company.

False and fictitious claims of higher Paid up Capital by 13 Companies

4.7.4.1 13 Companies did not have the requisite Paid up Capital

13 Applicant Companies, which had applied for 123 UAS licenses and were

granted 85 UAS licenses, did not have the requisite authorised share capital on the

date of submission of the applications. Hence the question of their meeting the

eligibility criterion of the Paid up capital as on the date of application did not arise.

Of these, eight applicants* belonging to Unitech Group (Brand name Uninor) had

been incorporated in August-September 2007 with an authorised share capital of

` 5 lakh each. All these eight companies passed the special resolutions for increase

in the authorised share capital between 2 PM to 5 PM on 20 September 2007 in the

extra-ordinary general meetings of the respective companies and deposited the

requisite stamp duties on 3 October 2007 for increase in the authorised share

capital. After they submitted the requisite applications along with the proof of

payment of stamp duties on 5 October 2007, the certificate of the registration of

the increase in the authorised share capital was issued by the ROC only on 8/11

October 2007. Thus the claim of the higher paid up capital of these companies on

the date of submission i.e. 24 September and the supporting certificates of the

company secretaries of these companies submitted along with their applications

was false and fictitious.

4.7.4.2 Another Company Allianz Infratech Private Limited, in their applications to the

DoT on 5 September 2007 claimed the paid up capital of ` 10 crore as on the date

of application.

Scrutiny of records by Audit revealed that the paid up share capital of this

company as on the date of application was ̀ 5 lakh only. Though they claimed that

they had increased the authorised share capital to ` 10 crore through the special

resolution on 1 September 2007 in the extra-ordinary general meetings of the

company, verification of the records revealed that they deposited the requisite

* Unitech Infrastructure Pvt. Ltd., Unitech Builders & Estates Pvt. Ltd., Azare Properties Ltd, Hudson Properties Pvt. Ltd., Nahan Properties Pvt. Ltd.,Aska Projects Ltd,Volga Properties Pvt. Ltd., Adonis Projects Pvt. Ltd.


stamp duties (Annexure V) for enhancement in the authorised share capital on 24

December 2007 and Form No 5 along with other papers with the ROC on 27

December 2007 only for registration of increase in the authorised share capital of

the company. They also violated the provisions of the Section 18 (1) of the

Companies Act which provides that a certified copy of the order confirming the

alterations in the MOA/AOA shall be filed by the Company within three months

from the date of the resolution with the ROC. Hence their claim of the paid up

capital of ` 10 crore as on 5 September 2007 was false, fictitious and without any

basis.

4.7.4.3 Shipping Stop Dot Com (India) Private Limited (later on changed to Loop Telecom

Private Limited) also made a patently false claim of the paid up capital of ̀ 130.65

crore through their company secretary V V Chakradeo & Deo while submitting

their applications for grant of UAS licenses for 21 service areas on 3 September

2007 to the DoT. Audit found that the Company had deposited the statutory stamp

duties of ̀ 18.87 lakh for increase in the authorised share capital from ̀ 5.20 Crore

to ` 131 crore on 25 September 2007 and submitted the form 5 along with the

proof of payment of stamp duty on 24 October 2007 to the ROC Delhi for

registering the increase in the authorised share capital to ̀ 131 crore. The question

regarding any increase in the paid up capital beyond ` 5.20 crore could therefore

arise on or after 24 October 2007 only. Thus the certificate given by the Company

for the claim of the paid up capital of ` 130.65 crore through their company

secretary V V Chakradeo & Deo at the time of submission of application for UAS

licence was a fictitious document submitted to the DoT with a malafide intention

to secure the UAS licence.

4.7.4.4 Datacom Solutions Private Limited (later changed to Videocon

Telecommunications Limited) while submitting their application for the grant of

22 UAS licenses on 28 August 2007 made a false claim of the paid up capital of

` 150 crore through their company secretary although the MOA and AOA attached

with the applications indicated that the authorised share capital of the company

as ` 1.00 lakh only. Since the requirement of the requisite amount of the paid up

capital was an important eligibility criterion, their applications ought to have been

rejected forthwith. However, on 27 November 2007, the company suo-motto

submitted a so-called “correct” version of MOA/AOA as on 28 August 2007 stating

that they had submitted an old version of MOA/AOA inadvertently along with the

application. The new version of MOA/AOA claimed to have increased the

authorised share capital from ` 1.00 lakh to ` 150 crore through an ordinary

resolution passed in the extra-ordinary general meeting on 27 August 2007 i.e. the

day preceding the date of submission of applications by the Company.

Since there is a procedure prescribed in the Companies Act for effecting increase

in the authorised share capital of a company, the Company could under no

circumstances have a paid up capital of ` 150 crore on 28 August 2007 and hence

the certificate furnished by the Company Secretary of the Company appeared to be

false. The DoT failed miserably to do any due diligence in the examination of claims

of the company even when the Company claimed to have passed the resolution

enhancing the authorised share capital on the preceding day of the date of

application of the applicant company.

4.7.4.5 S Tel Private Limited, a company incorporated on 19 June 2007 with an authorised

share capital of ̀ 10 lakh, applied for 6 UAS licenses on 7 July 2007 claiming the paid

up capital of ` 18 crore on the basis of increase in the authorised share capital

through a special resolution in the extra ordinary general meeting on 2 July 2007.

Audit found that the company submitted the request to the ROC for registering the

resolution only on 3 August 2007. Hence the question of the paid capital of ` 18

crore on the date of application did not arise when the ROC had not even registered

the special resolution approving the increase in the authorised share capital as of 3

August 2007. Thus S Tel was ineligible to get the 6 UAS licenses from DOT.


Major Deficiencies in the Applications of UAS Licensees

Sr. No.

1.

2.

Name of ApplicantCompany/Changedname

Unitech Infrastructure Pvt. Ltd. ( Brand name Uninor)

Unitech Builders & Estates Pvt. Ltd. (Brand name Uninor)

Date ofIncorporationof the Company

10 August 2007

10 August 2007

Date ofapplication

24.09.2007

24.09.2007

No. oflicensesissued

1

1

Major shortcomings observed

n

n

n

n

n

n

The business activity in the main object clause of MOA was real estate instead of telecom as the resolution effecting the alteration was not yet registered as on the date of application;

Suppressed the non - registration of alteration in the main object clause of MOA by ROC;

Authorised share capital was only ` 5 lakh against the requirement of ` 10 crore;

Deposited the stamp duties for increase in the authorised share capital on 3 Oct,2007;

Registration of the resolution effecting the increase in the authorised share capital was done on 11 October 2007;

Submitted false certificate from Company Secretary in respect of Paid up capital;

n

n

The business activity in the main object clause of MOA was real estate instead of telecom as the condition prescribed by ROC while doing the registration of resolution was not yet met;

Suppressed the conditional registration of alteration in the main object clause of MOA by ROC;


stamp duties (Annexure V) for enhancement in the authorised share capital on 24

December 2007 and Form No 5 along with other papers with the ROC on 27

December 2007 only for registration of increase in the authorised share capital of

the company. They also violated the provisions of the Section 18 (1) of the

Companies Act which provides that a certified copy of the order confirming the

alterations in the MOA/AOA shall be filed by the Company within three months

from the date of the resolution with the ROC. Hence their claim of the paid up

capital of ` 10 crore as on 5 September 2007 was false, fictitious and without any

basis.

4.7.4.3 Shipping Stop Dot Com (India) Private Limited (later on changed to Loop Telecom

Private Limited) also made a patently false claim of the paid up capital of ̀ 130.65

crore through their company secretary V V Chakradeo & Deo while submitting

their applications for grant of UAS licenses for 21 service areas on 3 September

2007 to the DoT. Audit found that the Company had deposited the statutory stamp

duties of ̀ 18.87 lakh for increase in the authorised share capital from ̀ 5.20 Crore

to ` 131 crore on 25 September 2007 and submitted the form 5 along with the

proof of payment of stamp duty on 24 October 2007 to the ROC Delhi for

registering the increase in the authorised share capital to ̀ 131 crore. The question

regarding any increase in the paid up capital beyond ` 5.20 crore could therefore

arise on or after 24 October 2007 only. Thus the certificate given by the Company

for the claim of the paid up capital of ` 130.65 crore through their company

secretary V V Chakradeo & Deo at the time of submission of application for UAS

licence was a fictitious document submitted to the DoT with a malafide intention

to secure the UAS licence.

4.7.4.4 Datacom Solutions Private Limited (later changed to Videocon

Telecommunications Limited) while submitting their application for the grant of

22 UAS licenses on 28 August 2007 made a false claim of the paid up capital of

` 150 crore through their company secretary although the MOA and AOA attached

with the applications indicated that the authorised share capital of the company

as ` 1.00 lakh only. Since the requirement of the requisite amount of the paid up

capital was an important eligibility criterion, their applications ought to have been

rejected forthwith. However, on 27 November 2007, the company suo-motto

submitted a so-called “correct” version of MOA/AOA as on 28 August 2007 stating

that they had submitted an old version of MOA/AOA inadvertently along with the

application. The new version of MOA/AOA claimed to have increased the

authorised share capital from ` 1.00 lakh to ` 150 crore through an ordinary

resolution passed in the extra-ordinary general meeting on 27 August 2007 i.e. the

day preceding the date of submission of applications by the Company.

Since there is a procedure prescribed in the Companies Act for effecting increase

in the authorised share capital of a company, the Company could under no

circumstances have a paid up capital of ` 150 crore on 28 August 2007 and hence

the certificate furnished by the Company Secretary of the Company appeared to be

false. The DoT failed miserably to do any due diligence in the examination of claims

of the company even when the Company claimed to have passed the resolution

enhancing the authorised share capital on the preceding day of the date of

application of the applicant company.

4.7.4.5 S Tel Private Limited, a company incorporated on 19 June 2007 with an authorised

share capital of ̀ 10 lakh, applied for 6 UAS licenses on 7 July 2007 claiming the paid

up capital of ` 18 crore on the basis of increase in the authorised share capital

through a special resolution in the extra ordinary general meeting on 2 July 2007.

Audit found that the company submitted the request to the ROC for registering the

resolution only on 3 August 2007. Hence the question of the paid capital of ` 18

crore on the date of application did not arise when the ROC had not even registered

the special resolution approving the increase in the authorised share capital as of 3

August 2007. Thus S Tel was ineligible to get the 6 UAS licenses from DOT.



Sr. No.

1.

2.


Unitech Infrastructure Pvt. Ltd. ( Brand name Uninor)

Unitech Builders & Estates Pvt. Ltd. (Brand name Uninor)


10 August 2007

10 August 2007

Date ofapplication

24.09.2007

24.09.2007


1

1


n

n

n

n

n

n





Registration of the resolution effecting the increase in the authorised share capital was done on 11 October 2007;


n

n





Sr. No.



Date ofapplication



n

n

n

n



Registration of the resolution effecting increase in the authorised share capital was done on 8 October 2007;


3.

4.

Azare Properties Ltd(Brand name Uninor)

Hudson Properties Pvt. Ltd. ( Brandname Uninor)

1 August 2007

1 August 2007

24.09.2007

24.09.2007

1

1

n

n

n

n

n

n


Suppressed the non - registration of alteration in the main object clause of MOA;




Submitted false certificate from Company Secretary in respect of Paid up capital ;

n

n

n

n







Sr. No.



Date ofapplication



n

n

Registration of resolution effecting increase in the authorised share capital was done on 8 October 2007;


5.

6.

Nahan Properties Pvt. Ltd. (Brand name Uninor)

Adonis Projects Pvt. Ltd. (Brand name Uninor)

16 August 2007

28 August 2007

24.09.2007

24.09.2007

6

6

n

n

n

n

n

n



Authorised share capital was only ` 5 lakh against ` 22 crore;




n

n

n

n

n

n









Sr. No.



Date ofapplication



n

n

n

n





3.

4.

Azare Properties Ltd(Brand name Uninor)

Hudson Properties Pvt. Ltd. ( Brandname Uninor)

1 August 2007

1 August 2007

24.09.2007

24.09.2007

1

1

n

n

n

n

n

n


Suppressed the non - registration of alteration in the main object clause of MOA;





n

n

n

n







Sr. No.



Date ofapplication



n

n

Registration of resolution effecting increase in the authorised share capital was done on 8 October 2007;


5.

6.

Nahan Properties Pvt. Ltd. (Brand name Uninor)

Adonis Projects Pvt. Ltd. (Brand name Uninor)

16 August 2007

28 August 2007

24.09.2007

24.09.2007

6

6

n

n

n

n

n

n



Authorised share capital was only ` 5 lakh against ` 22 crore;




n

n

n

n

n

n









Sr. No.



Date ofapplication



7.

8.

Aska Projects Ltd. (Brand name Uninor)

Volga Properties Pvt. Ltd. (Brand name Uninor)

16 August 2007

1 September 2007

24.09.2007

24.09.2007

3

3

n

n

n

n

n

n







n

n

n

n

n

n





Registration of the resolution effecting increase in the authorised share capital was done on 8 October 2007

Submitted false certificate from Company Secretary in respect of Paid up capital



Sr. No.



Date ofapplication



9.

10.

Shipping Stop Dot Com (India) Private Limited ( Now Loop Telecom Pvt. Ltd)

Allianz Infratech (P) Ltd. (merged with Etisalat DB)

12 March 1997

21 December 2006

03/09/2007

5/09/2007

21

2

n

n

n

n

n

n

n

The business activity in the main object clause of MOA was to design, develop, sell, maintain computer software and programmes as the resolution effecting the alteration was not yet registered as on the date of application;

The resolution effecting the alterations in main object clause of the MOA to include the telecom sector was registered by the ROC on 28 September 2007 only;


Authorised share capital was only ` 5.20 crore against the requirement of ` 128 crore;

Deposited the stamp duties for increase in the authorised share capital on 25 Sept. 2007;

Request for Registration of increase in the authorised share capital was submitted on 24 October 2007;

Submitted false certificate from Company Secretary re. Paid up capital ;

n

n

n

n

n

n




Deposited the stamp duties for increase in the authorised share capital on 24 December 2007;

Form No 5 along with other papers to increase the authorised share capital was submitted in ROC on 27 December 2007




Sr. No.



Date ofapplication



7.

8.

Aska Projects Ltd. (Brand name Uninor)

Volga Properties Pvt. Ltd. (Brand name Uninor)

16 August 2007

1 September 2007

24.09.2007

24.09.2007

3

3

n

n

n

n

n

n







n

n

n

n

n

n





Registration of the resolution effecting increase in the authorised share capital was done on 8 October 2007

Submitted false certificate from Company Secretary in respect of Paid up capital



Sr. No.



Date ofapplication



9.

10.

Shipping Stop Dot Com (India) Private Limited ( Now Loop Telecom Pvt. Ltd)

Allianz Infratech (P) Ltd. (merged with Etisalat DB)

12 March 1997

21 December 2006

03/09/2007

5/09/2007

21

2

n

n

n

n

n

n

n

The business activity in the main object clause of MOA was to design, develop, sell, maintain computer software and programmes as the resolution effecting the alteration was not yet registered as on the date of application;

The resolution effecting the alterations in main object clause of the MOA to include the telecom sector was registered by the ROC on 28 September 2007 only;


Authorised share capital was only ` 5.20 crore against the requirement of ` 128 crore;

Deposited the stamp duties for increase in the authorised share capital on 25 Sept. 2007;

Request for Registration of increase in the authorised share capital was submitted on 24 October 2007;


n

n

n

n

n

n




Deposited the stamp duties for increase in the authorised share capital on 24 December 2007;

Form No 5 along with other papers to increase the authorised share capital was submitted in ROC on 27 December 2007




Sr. No.



Date ofapplication



11.

12.

13.

Datacom Solutions Pvt. Ltd. (Changed to Videocon Telecommunications Ltd.)

S Tel Ltd.

Swan Telecom Private Limited (Now Etisalat DB Telecom Private Limited)

7 June 2007

19 June 2007

13 July 2006

28/08/2007

07/07/2007

02/03/2007

21

6

13

n

n

n

n

Suppressed the non - registration of the resolution effecting alteration in the MOA effecting increase in the authorised share capital by ROC;


Increased authorised share capital on the day preceding the date of submission of application through a resolution;

Submitted false certificate re. Paid up capital, though the resolution effecting the increase in the authorised share capital and alterations in the MOA/AOA was not yet registered by ROC;

n

n

n

n

Suppressed the non - registration of alteration in the MOA/AOA regarding increase in the authorised share capital

Authorised share capital was only ` 10 lakh against the requirement of ` 18 crore as on the date of application;

Submitted the form for Registration of the resolution effecting the increase in the authorised share capital on 3 August 2007;

Submitted false certificate from Company Secretary re. Paid up capital though the resolution effecting the increase in the authorised share capital and alterations in the MOA/AOA was not yet registered by ROC;

n

n

n

Suppressed the non - registration of alteration in the MOA/AOA regarding increase in the authorised share capital done on the preceding day i.e. 1 March 2007;

Deposited the stamp duties and Form 5 to ROC Mumbai for registering the resolution effecting the increase in the authorised share capital on 14 March 2007;

Submitted false certificate from Company Secretary re. Paid up capital;



Sr. No.



Date ofapplication



n Net worth of ` 314.7 crore claimed on behalf of Reliance Telecom Ltd, whose share was claimed to be less than 10%, was not to be included while computing the net-worth of the applicant company.

It would thus appear that the DoT miserably failed to do the necessary due diligence

in the examination of the applications of these applicants though they took more

than 3-9 months to process these applications as against the prescribed period of

30 days.

4.7.4.6 Swan Telecom Private Limited (changed to Etisalat DB Telecom Private Limited)

applied for grant of UAS licence in 13 service area in March 2007. In compliance to

substantial equity clause the applicant declared the following equity structure:-

From the above declaration of the Company for UAS licence, it was evident that at

the time of applying for UASL, the equity stakes of Reliance Telecom Ltd in Swan

Telecom Private Limited was 10.71%. Since Reliance Telecom Ltd were operating in

all the service areas for which Swan Telecom Limited had applied for UASL, the

application of Swan Telecom Private Limited was not in conformity with the UASL

Guidelines, and hence was not eligible to be considered. The DoT did not have any

mechanism to verify the correctness of the share holding pattern of the applicant

and hence the matter should have been referred to the Ministry of Corporate Affairs

(MoCA) as was advised by the Finance Wing of the Department. No reference,

(Audit Finding: *8% non-cumulative redeemable preference shares (NCRPS) of ` 1 each at a premium of ` 999. Thus each

preference share was at the value of ̀ 1000. The total equity/ stakes of RTL in the Swan Telecom was of ̀ 992 cr +10.7910 cr =`

1002.7930 crore as against equity holding of ̀ 98.2190 crore by the majority share-holder-Tiger Traders Private Ltd.)

BOX-4

Sl

No.

Name of the Shareholder No. of Equityshare @ ` 10per share

No. ofPerformance share @ 1 per share

Value ofshare(in `)

% of Totalshareholding

1

2

3

Tiger Traders Pvt. Ltd.

Reliance Telecom Limitied

Reliance Telecom Limited

TOTAL

98219000

10791000

–

–

–

9920000*

98,21,90,000

10,79,10,000

99,20,000

110,0020,000

89.29%

9.81%

0.90%

100%



Sr. No.



Date ofapplication



11.

12.

13.

Datacom Solutions Pvt. Ltd. (Changed to Videocon Telecommunications Ltd.)

S Tel Ltd.

Swan Telecom Private Limited (Now Etisalat DB Telecom Private Limited)

7 June 2007

19 June 2007

13 July 2006

28/08/2007

07/07/2007

02/03/2007

21

6

13

n

n

n

n

Suppressed the non - registration of the resolution effecting alteration in the MOA effecting increase in the authorised share capital by ROC;


Increased authorised share capital on the day preceding the date of submission of application through a resolution;

Submitted false certificate re. Paid up capital, though the resolution effecting the increase in the authorised share capital and alterations in the MOA/AOA was not yet registered by ROC;

n

n

n

n

Suppressed the non - registration of alteration in the MOA/AOA regarding increase in the authorised share capital

Authorised share capital was only ` 10 lakh against the requirement of ` 18 crore as on the date of application;

Submitted the form for Registration of the resolution effecting the increase in the authorised share capital on 3 August 2007;

Submitted false certificate from Company Secretary re. Paid up capital though the resolution effecting the increase in the authorised share capital and alterations in the MOA/AOA was not yet registered by ROC;

n

n

n

Suppressed the non - registration of alteration in the MOA/AOA regarding increase in the authorised share capital done on the preceding day i.e. 1 March 2007;

Deposited the stamp duties and Form 5 to ROC Mumbai for registering the resolution effecting the increase in the authorised share capital on 14 March 2007;

Submitted false certificate from Company Secretary re. Paid up capital;



Sr. No.



Date ofapplication



n Net worth of ` 314.7 crore claimed on behalf of Reliance Telecom Ltd, whose share was claimed to be less than 10%, was not to be included while computing the net-worth of the applicant company.

It would thus appear that the DoT miserably failed to do the necessary due diligence

in the examination of the applications of these applicants though they took more

than 3-9 months to process these applications as against the prescribed period of

30 days.

4.7.4.6 Swan Telecom Private Limited (changed to Etisalat DB Telecom Private Limited)

applied for grant of UAS licence in 13 service area in March 2007. In compliance to

substantial equity clause the applicant declared the following equity structure:-

From the above declaration of the Company for UAS licence, it was evident that at

the time of applying for UASL, the equity stakes of Reliance Telecom Ltd in Swan

Telecom Private Limited was 10.71%. Since Reliance Telecom Ltd were operating in

all the service areas for which Swan Telecom Limited had applied for UASL, the

application of Swan Telecom Private Limited was not in conformity with the UASL

Guidelines, and hence was not eligible to be considered. The DoT did not have any

mechanism to verify the correctness of the share holding pattern of the applicant

and hence the matter should have been referred to the Ministry of Corporate Affairs

(MoCA) as was advised by the Finance Wing of the Department. No reference,

(Audit Finding: *8% non-cumulative redeemable preference shares (NCRPS) of ` 1 each at a premium of ` 999. Thus each

preference share was at the value of ̀ 1000. The total equity/ stakes of RTL in the Swan Telecom was of ̀ 992 cr +10.7910 cr =`

1002.7930 crore as against equity holding of ̀ 98.2190 crore by the majority share-holder-Tiger Traders Private Ltd.)

BOX-4

Sl

No.

Name of the Shareholder No. of Equityshare @ ` 10per share

No. ofPerformance share @ 1 per share

Value ofshare(in `)

% of Totalshareholding

1

2

3

Tiger Traders Pvt. Ltd.

Reliance Telecom Limitied

Reliance Telecom Limited

TOTAL

98219000

10791000

–

–

–

9920000*

98,21,90,000

10,79,10,000

99,20,000

110,0020,000

89.29%

9.81%

0.90%

100%


however, was made to the MoCA and instead Swan Telecom was given an

opportunity to resubmit a revised stake holding pattern in December 2007 i.e. 9

months after their date of application which declared that Reliance Telecom

Limited had divested their entire stakes. This was accepted by the DoT and Swan

Telecom Private Limited was given the benefit of seniority from the date of their

initial application i.e. March 2007.

As Swan Telecom did not meet the eligibility criteria on the date of application, its

application should have been rejected by the DoT and the company should have

been directed to apply afresh. Even if it was to be considered eligible on the basis

of its old application, the date of priority based on FCFS basis should have been

revised from March 2007 to December 2007 in order to ensure fairness. Had it

been so, the company would have been out of the race as the department

processed only those applications which were received up to 25.09.2007.

4.7.4.6.1 DoT stated (July 2010) that at the time of applications the equity of Reliance

Telecom was 9.81 per cent which was well within the prescribed limit of 10 per

cent. Further, the DoT quoted Section 85 explanation (2) of Companies Act, 1956

which says that “equity share capital means all capital which is not preferential

share capital”, to justify the decision to grant UASL to Swan Telecom. The DoT

further stated that in the opinion of the Ld. Solicitor General “whether the

application as originally filed was in order or not was the subject matter of

divergent opinions and a view had already been taken that if regard be given to the

equity share capital in the company, the application could not be said to be in

violation of clause 8”. In view of these clarifications, there was no favouritism in

the grant of UASL to Swan Telecom Pvt. Ltd.

4.7.4.6.2 The reply of the DoT appears to be evasive. The issues involved were financial in

nature. It would have been prudent if the DoT would have sought the opinion of

the MoF or MoCA on “Financial or Corporate matter” rather than from Solicitor

General. On verification, it was found that if the stake of RTL was considered less

than 10%, then the application of Swan Telecom would have been liable to be

rejected on the grounds of non-fulfillment of the requirement of the net-worth as

the Swan Telecom had claimed the net-worth of the applicant company only on

the strength of the RTL (` 314.7 crore ) with the contribution of the major share-

holder ( Tigers Traders Private Limited) being ` 1 lakh in their application on 2

March 2007 (Annexure VI). Audit further found that the basic claim of the paid up

capital of ` 110 crore by Swan Telecom Private Limited itself was false as the

authorised share capital of the company as on the date of application i.e. 2 March

2007 was ` 4 crore only. The company had passed a special resolution on the

preceding day i.e. 1 March 2007 to increase the authorised share capital from ` 4

crore to ` 125 crore but deposited the statutory stamp duties and submitted the

Form 5 to the ROC, Mumbai on 14 March 2007 only (Annexure V) for registration of

the increase in the authorised share capital of the company. Only after the

registration of the resolution of the Company by the ROC, the increase in the

authorised share capital would have come into effect. The question of the increase

in the paid up capital would have arisen thereafter only. Thus the paid up capital of

Swan Telecom Pvt. Ltd. was ̀ 4 crore on the date of application i.e.2 March 2007 and

hence they were ineligible on both account i.e. non-fulfillment of the requirement

of the net worth as well as paid up capital for grant of UAS licenses for 13 service

areas on the date of application if the reply of the DoT is accepted.

(The total equity/ stakes of RTL in the Swan Telecom

was of `1002.79 crore as against equity holding of `98.22 crore by the majority

share-holder-Tiger Traders Private Ltd.)

“A

promoter company/ legal person cannot have stakes in more than one Licensee

Company for the same service area. No single company/ legal person, either

directly or through its associates, shall have substantial equity holding in more than

one Licensee Company in the same service area for the Access Services namely;

Basic, Cellular and Unified Access Service. 'Substantial Equity' was defined as equity

of 10% or more.” Thus it would therefore appear that Swan Telecom Private Limited

while applying for the UAS licenses in 13 Service Areas was acting as a front

company on the behalf of RTL and their application was in effect against the intent

and spirit of the UAS licensing guidelines.

To conclude, 85 licenses were issued to the Companies which suppressed facts,

disclosed incomplete information and submitted fictitious documents to the DoT

and thus used fraudulent means for getting UAS licenses and thereby access to

spectrum. Owners of these licenses, obtained at unbelievably low price, have in

turn sold significant stakes in their companies to the Indian/foreign companies at

high premium within a short period of time. The premium earned by these new

entrants to the telecom sector was nothing but the true value of the spectrum,

which should have normally accrued to the public exchequer. The DoT, on its part

failed to exercise due diligence in the processing of UASL applications and ensuring

effective verification of the documents submitted by these applicants which

Audit also found that the email ID of the corporate as well as registered office of

the Swan Telecom Private Limited in their application dated 2 March 2007 was

shown as [email protected]. The same email ID (hari.nair@

relianceada.com) also was given for the correspondence address and the

authorised contact person of the applicant company. Though the Company

Secretary Hari Nair had given a certificate(Annexure-VII) while applying for a UAS

licence for J&K Service Area in January 2007 that the Tigers Traders Private

Limited held the shares of Swan (then Swan Capital private Limited) as trustees of

Indian Telecom Infrastructure fund and these corporate beneficiaries are not part

of Reliance ADA Group and neither Shri Anil Ambani nor his family or Reliance

ADA Group companies holds any shares in these companies, holding of NCRPS of

`1 at a premium of `999 by the RTL in Swan Telecom, a newly incorporated

company with no fixed assets

raises doubts about the intention of the

RTL and the control it would exercise in a new company incorporated barely few

months ago. Hence the application of such company to enter telecom sector goes

against the intent and spirit behind the UAS guidelines, which state that



however, was made to the MoCA and instead Swan Telecom was given an

opportunity to resubmit a revised stake holding pattern in December 2007 i.e. 9

months after their date of application which declared that Reliance Telecom

Limited had divested their entire stakes. This was accepted by the DoT and Swan

Telecom Private Limited was given the benefit of seniority from the date of their

initial application i.e. March 2007.

As Swan Telecom did not meet the eligibility criteria on the date of application, its

application should have been rejected by the DoT and the company should have

been directed to apply afresh. Even if it was to be considered eligible on the basis

of its old application, the date of priority based on FCFS basis should have been

revised from March 2007 to December 2007 in order to ensure fairness. Had it

been so, the company would have been out of the race as the department

processed only those applications which were received up to 25.09.2007.

4.7.4.6.1 DoT stated (July 2010) that at the time of applications the equity of Reliance

Telecom was 9.81 per cent which was well within the prescribed limit of 10 per

cent. Further, the DoT quoted Section 85 explanation (2) of Companies Act, 1956

which says that “equity share capital means all capital which is not preferential

share capital”, to justify the decision to grant UASL to Swan Telecom. The DoT

further stated that in the opinion of the Ld. Solicitor General “whether the

application as originally filed was in order or not was the subject matter of

divergent opinions and a view had already been taken that if regard be given to the

equity share capital in the company, the application could not be said to be in

violation of clause 8”. In view of these clarifications, there was no favouritism in

the grant of UASL to Swan Telecom Pvt. Ltd.

4.7.4.6.2 The reply of the DoT appears to be evasive. The issues involved were financial in

nature. It would have been prudent if the DoT would have sought the opinion of

the MoF or MoCA on “Financial or Corporate matter” rather than from Solicitor

General. On verification, it was found that if the stake of RTL was considered less

than 10%, then the application of Swan Telecom would have been liable to be

rejected on the grounds of non-fulfillment of the requirement of the net-worth as

the Swan Telecom had claimed the net-worth of the applicant company only on

the strength of the RTL (` 314.7 crore ) with the contribution of the major share-

holder ( Tigers Traders Private Limited) being ` 1 lakh in their application on 2

March 2007 (Annexure VI). Audit further found that the basic claim of the paid up

capital of ` 110 crore by Swan Telecom Private Limited itself was false as the

authorised share capital of the company as on the date of application i.e. 2 March

2007 was ` 4 crore only. The company had passed a special resolution on the

preceding day i.e. 1 March 2007 to increase the authorised share capital from ` 4

crore to ` 125 crore but deposited the statutory stamp duties and submitted the

Form 5 to the ROC, Mumbai on 14 March 2007 only (Annexure V) for registration of

the increase in the authorised share capital of the company. Only after the

registration of the resolution of the Company by the ROC, the increase in the

authorised share capital would have come into effect. The question of the increase

in the paid up capital would have arisen thereafter only. Thus the paid up capital of

Swan Telecom Pvt. Ltd. was ̀ 4 crore on the date of application i.e.2 March 2007 and

hence they were ineligible on both account i.e. non-fulfillment of the requirement

of the net worth as well as paid up capital for grant of UAS licenses for 13 service

areas on the date of application if the reply of the DoT is accepted.

(The total equity/ stakes of RTL in the Swan Telecom

was of `1002.79 crore as against equity holding of `98.22 crore by the majority

share-holder-Tiger Traders Private Ltd.)

“A

promoter company/ legal person cannot have stakes in more than one Licensee

Company for the same service area. No single company/ legal person, either

directly or through its associates, shall have substantial equity holding in more than

one Licensee Company in the same service area for the Access Services namely;

Basic, Cellular and Unified Access Service. 'Substantial Equity' was defined as equity

of 10% or more.” Thus it would therefore appear that Swan Telecom Private Limited

while applying for the UAS licenses in 13 Service Areas was acting as a front

company on the behalf of RTL and their application was in effect against the intent

and spirit of the UAS licensing guidelines.

To conclude, 85 licenses were issued to the Companies which suppressed facts,

disclosed incomplete information and submitted fictitious documents to the DoT

and thus used fraudulent means for getting UAS licenses and thereby access to

spectrum. Owners of these licenses, obtained at unbelievably low price, have in

turn sold significant stakes in their companies to the Indian/foreign companies at

high premium within a short period of time. The premium earned by these new

entrants to the telecom sector was nothing but the true value of the spectrum,

which should have normally accrued to the public exchequer. The DoT, on its part

failed to exercise due diligence in the processing of UASL applications and ensuring

effective verification of the documents submitted by these applicants which

Audit also found that the email ID of the corporate as well as registered office of

the Swan Telecom Private Limited in their application dated 2 March 2007 was

shown as [email protected]. The same email ID (hari.nair@

relianceada.com) also was given for the correspondence address and the

authorised contact person of the applicant company. Though the Company

Secretary Hari Nair had given a certificate(Annexure-VII) while applying for a UAS

licence for J&K Service Area in January 2007 that the Tigers Traders Private

Limited held the shares of Swan (then Swan Capital private Limited) as trustees of

Indian Telecom Infrastructure fund and these corporate beneficiaries are not part

of Reliance ADA Group and neither Shri Anil Ambani nor his family or Reliance

ADA Group companies holds any shares in these companies, holding of NCRPS of

`1 at a premium of `999 by the RTL in Swan Telecom, a newly incorporated

company with no fixed assets

raises doubts about the intention of the

RTL and the control it would exercise in a new company incorporated barely few

months ago. Hence the application of such company to enter telecom sector goes

against the intent and spirit behind the UAS guidelines, which state that



reflected inadequacy in the verifications procedures that were put in place. Since

these Companies did not meet the eligibility criteria set by the DoT on the date of

their application, their applications should have been rejected and they should

have been asked to apply afresh as stipulated in the UASL guidelines.

The DoT, when pointed out the above, informed that based on the audit

observation, issue of show cause notices for termination of the UAS Licenses to all

the erring companies was being contemplated.

Access to dual technology4.8

In November 2003, based on Cabinet decision, the DoT had issued guidelines for UAS licence

which stipulated that

In April 2007, the DoT requested TRAI to furnish their recommendations on permitting

“service providers to offer access services using combination of technologies (CDMA, GSM

and/or any other) under the same licence”. TRAI's recommendations on the issue were

received along with other recommendations in August 2007.

As per these recommendations, “A licensee using one technology may be permitted on

request, usage of alternative technology and thus allocation of dual spectrum. However,

such a licensee must pay the same amount of fee which has been paid by existing licensees

using the alternative technology or which would be paid by a new licensee going to use that

technology”. Regarding inter se priority for spectrum allocation, when the existing licensee

becomes eligible for allocation of additional spectrum specific to the new technology, such a

licensee has to be treated like any other existing licensee in the queue and the inter se

priority of allocation should be based on the criteria that may be determined by the DoT for

the existing licensee.

4.8.1 Undue benefits to Reliance Communications Limited

Four Companies Reliance Communications Ltd., Tata Teleservices, Shyam Telelink

Ltd. and HFCL Infotel Ltd. were providing CDMA based mobile service under UAS

licence. Three Companies (Reliance Communications Ltd for 20 Service Areas,

Shyam Telelink Ltd for Rajasthan Service Area and HFCL Infotel Ltd. for Punjab

Service Area) had applied for permission for using GSM technology in 2006. Since

the combination of technologies (CDMA, GSM and/or any other) under the same

licence was not permitted, DoT had not acceded to their request till April 2007.

Based on the recommendations of TRAI, the decision for use of alternate technology

was taken for the first time by the DoT on 17 October 2007. This decision, however,

was taken without referring the matter to the full Telecom Commission even when it

involved allocation of spectrum in 2007 at the 2001 price.

“the service providers migrating to Unified Access Services Licence

will continue to provide wireless services in already allocated/contracted spectrum and no

additional spectrum will be allotted under the migration process for Unified Access

Services Licence”.

DoT issued a Press release in this regard on 19 October 2007. However, before

announcing the acceptance of the recommendations of the TRAI in this regard, 'in-

principle' approval for using GSM technology ( dual/alternate technology) was given,

on 18 October 2007 itself (a day before the press release) to the three operators who

had, sought for facility for using alternate technology in 2006 when it had not even

been contemplated. The undue haste shown in issuing in-principle' approval for using

GSM technology to Reliance Communication (20 service areas), Shyam Telelink Ltd.

(1 service area) and HFCL Infotel Ltd (1 service area) was not evident afterwards as

when the Tata Teleservices Ltd applied for dual technology immediately after the

issue of the Press notification on19 October 2007, LOI was not issued to them till

January 2008. Further, other applicants* were still waiting for similar licence for over

two and half years as of now.

Reliance Communication Ltd. had complied with the requirements for permission to

use dual technology on 19 October 2007 itself by depositing the non refundable entry

fee of ` 1645 crore for 20 service areas through their sister concern Reliance

Infocomm Ltd. Acceptance of bank drafts for ` 1645 crore by the orders of Reliance

Infocomm Ltd (third party) on behalf of Reliance Communications Ltd was also not in

order and shows the hurry through which entry fee was deposited. As a result,

Reliance Communications Ltd. could acquire the right for allocation of 2G spectrum in

20 service areas on the day the policy itself was announced.

4.8.2. By taking the priority date of Reliance Communications Ltd. as the date on which they

had moved application for use of alternate technology (when it was not even

formulated and permitted) i.e. 2006, they were allocated start-up spectrum on 10

and 11 January 2008 in 14 service areas (the operator withdrew request for 6 service

areas where they were already providing GSM services) ahead of other operators

who had applied for new UAS licences and whose applications were kept pending on

the grounds of non-availability of spectrum. Spectrum under dual technology was

allotted to HFCL Infotel Ltd. in Punjab only in September 2008 and Shyam Telelink

Ltd.in Rajasthan in December 2008 though these companies also applied for

spectrum under dual technology along with Reliance Communications Limited in

2006. In Delhi service area, Reliance was allocated GSM spectrum in January 2008

while Datacom Solutions Pvt. Ltd, Unitech Wireless Ltd, Spice Communications Ltd,

Loop Telecom Pvt. Ltd. and Tata Teleservices Ltd. were not allocated GSM spectrum

till September 2010.

Thus the process followed by the DoT while introducing access to the dual technology

to the existing telecom operators in India lacked transparency and fairness. Equal

opportunity was denied to other similarly placed operators who could apply for use of

dual technology, only after the formal announcement of the policy.


* 1. Tata Teleservices 2. Sistema Shyam Teleservices 3. Etisalat DB Telecom Pvt. Limited


reflected inadequacy in the verifications procedures that were put in place. Since

these Companies did not meet the eligibility criteria set by the DoT on the date of

their application, their applications should have been rejected and they should

have been asked to apply afresh as stipulated in the UASL guidelines.

The DoT, when pointed out the above, informed that based on the audit

observation, issue of show cause notices for termination of the UAS Licenses to all

the erring companies was being contemplated.

Access to dual technology4.8

In November 2003, based on Cabinet decision, the DoT had issued guidelines for UAS licence

which stipulated that

In April 2007, the DoT requested TRAI to furnish their recommendations on permitting

“service providers to offer access services using combination of technologies (CDMA, GSM

and/or any other) under the same licence”. TRAI's recommendations on the issue were

received along with other recommendations in August 2007.

As per these recommendations, “A licensee using one technology may be permitted on

request, usage of alternative technology and thus allocation of dual spectrum. However,

such a licensee must pay the same amount of fee which has been paid by existing licensees

using the alternative technology or which would be paid by a new licensee going to use that

technology”. Regarding inter se priority for spectrum allocation, when the existing licensee

becomes eligible for allocation of additional spectrum specific to the new technology, such a

licensee has to be treated like any other existing licensee in the queue and the inter se

priority of allocation should be based on the criteria that may be determined by the DoT for

the existing licensee.

4.8.1 Undue benefits to Reliance Communications Limited

Four Companies Reliance Communications Ltd., Tata Teleservices, Shyam Telelink

Ltd. and HFCL Infotel Ltd. were providing CDMA based mobile service under UAS

licence. Three Companies (Reliance Communications Ltd for 20 Service Areas,

Shyam Telelink Ltd for Rajasthan Service Area and HFCL Infotel Ltd. for Punjab

Service Area) had applied for permission for using GSM technology in 2006. Since

the combination of technologies (CDMA, GSM and/or any other) under the same

licence was not permitted, DoT had not acceded to their request till April 2007.

Based on the recommendations of TRAI, the decision for use of alternate technology

was taken for the first time by the DoT on 17 October 2007. This decision, however,

was taken without referring the matter to the full Telecom Commission even when it

involved allocation of spectrum in 2007 at the 2001 price.

“the service providers migrating to Unified Access Services Licence

will continue to provide wireless services in already allocated/contracted spectrum and no

additional spectrum will be allotted under the migration process for Unified Access

Services Licence”.

DoT issued a Press release in this regard on 19 October 2007. However, before

announcing the acceptance of the recommendations of the TRAI in this regard, 'in-

principle' approval for using GSM technology ( dual/alternate technology) was given,

on 18 October 2007 itself (a day before the press release) to the three operators who

had, sought for facility for using alternate technology in 2006 when it had not even

been contemplated. The undue haste shown in issuing in-principle' approval for using

GSM technology to Reliance Communication (20 service areas), Shyam Telelink Ltd.

(1 service area) and HFCL Infotel Ltd (1 service area) was not evident afterwards as

when the Tata Teleservices Ltd applied for dual technology immediately after the

issue of the Press notification on19 October 2007, LOI was not issued to them till

January 2008. Further, other applicants* were still waiting for similar licence for over

two and half years as of now.

Reliance Communication Ltd. had complied with the requirements for permission to

use dual technology on 19 October 2007 itself by depositing the non refundable entry

fee of ` 1645 crore for 20 service areas through their sister concern Reliance

Infocomm Ltd. Acceptance of bank drafts for ` 1645 crore by the orders of Reliance

Infocomm Ltd (third party) on behalf of Reliance Communications Ltd was also not in

order and shows the hurry through which entry fee was deposited. As a result,

Reliance Communications Ltd. could acquire the right for allocation of 2G spectrum in

20 service areas on the day the policy itself was announced.

4.8.2. By taking the priority date of Reliance Communications Ltd. as the date on which they

had moved application for use of alternate technology (when it was not even

formulated and permitted) i.e. 2006, they were allocated start-up spectrum on 10

and 11 January 2008 in 14 service areas (the operator withdrew request for 6 service

areas where they were already providing GSM services) ahead of other operators

who had applied for new UAS licences and whose applications were kept pending on

the grounds of non-availability of spectrum. Spectrum under dual technology was

allotted to HFCL Infotel Ltd. in Punjab only in September 2008 and Shyam Telelink

Ltd.in Rajasthan in December 2008 though these companies also applied for

spectrum under dual technology along with Reliance Communications Limited in

2006. In Delhi service area, Reliance was allocated GSM spectrum in January 2008

while Datacom Solutions Pvt. Ltd, Unitech Wireless Ltd, Spice Communications Ltd,

Loop Telecom Pvt. Ltd. and Tata Teleservices Ltd. were not allocated GSM spectrum

till September 2010.

Thus the process followed by the DoT while introducing access to the dual technology

to the existing telecom operators in India lacked transparency and fairness. Equal

opportunity was denied to other similarly placed operators who could apply for use of

dual technology, only after the formal announcement of the policy.


* 1. Tata Teleservices 2. Sistema Shyam Teleservices 3. Etisalat DB Telecom Pvt. Limited


4.8.3 Violation of 2003 Cabinet decision to allow additional spectrum at 2001 prices

Deviation from a Cabinet decision should normally be with the approval of Cabinet.

However, in the present case, such a crucial decision to permit service providers to

offer access services using combination of technologies (CDMA, GSM and/or any

other) under the same licence with dual spectrum allocation was taken without the

matter being referred to Cabinet.

Undue advantage to Swan Telecom Pvt. Ltd in the allocation of spectrum4.9

It was noted that the priority list was adjusted in Punjab, and Maharashtra service areas to

give undue advantage to Swan Telecom Pvt. Ltd in allocation of spectrum. In Punjab service

area, 15 MHz GSM spectrum was available in September 2008 which was sufficient to meet

the demand of only first three applicants in the priority list i.e. HFCL, Idea Cellular Ltd and

Unitech Wireless Pvt. Ltd. The request of Idea Cellular Ltd who was at the second place in the

priority list was, however, not considered on the grounds of its proposed merger with Spice

Communications Ltd who were offering service in Punjab service area. By keeping out Idea

Cellular Ltd from the priority list, spectrum was allocated to Swan Telecom Pvt. Ltd who was

at the 4th position on the priority list. In identical situation in Maharashtra service area,

Spice Communications Ltd was not allocated start-up spectrum citing its proposed merger

with Idea Cellular Ltd. Here too, the resultant beneficiary was Swan Telecom Pvt. Ltd.

4.9.1. As per DoT guidelines on merger of licenses in a service area, the post merger

licensee shall be entitled to the total amount of spectrum held by the merging

licensees, subject to the condition that after merger, licensee shall meet, within a

period of 3 months from the date of approval of merger by the licensor, the

prevailing spectrum allocation criterion. Hence, non allotment of spectrum to Idea

Cellular Ltd and Spice Communications Ltd on the grounds of merger was against the

DoT guidelines on the issue. Flouting the rules on both occasions by the DoT

benefited Swan Telecom Pvt. Ltd.

4.9.2 The DoT in response to the above observation (July 2010) informed that as the

merger proposal of Idea and Spice were under process, their request for initial

spectrum was not processed and kept reserved for them as per their priority of

spectrum application. Since their formal merger did not complete after several

months, the above operators were allotted initial spectrum which was kept

reserved for them. The response of the DoT ignores the fact that as per the data on

spectrum availability as on September 2008, the demand for only 3 operators could

be fulfilled in the order of their priority of application. Also, as per the priority list the

application of Swan Telecom Ltd was in the fourth position. Hence the allotment of

spectrum to Swan Telecom Ltd ahead of other companies was not as per the

approved principle of FCFS.


Value of spectrum allocated beyond the contracted quantity4.10

It was noticed in audit that 9 operators as

per the details in the box, were allotted

spectrum beyond the upper limit laid

down in the UASL agreement. Thus while

the DoT, on one hand, was not processing

pending applications for licence due to

non availability of spectrum, on the other

hand it was allotting spectrum to existing

operators beyond the contracted limit

without any upfront charges being

imposed or without determination of

market price of spectrum.

The Technical Committee appointed by Hon'ble MoC&IT for “Allocation of Access

(GSM/CDMA) spectrum and pricing” recommended in May 2009, that the additional

spectrum assigned beyond 6.2+6.2 MHz in an service area should attract an upfront charge

equivalent to the 3G auction price from the date of assignment.

Subsequently, TRAI also recommended in May 2010 for charging the additional spectrum

held by operators beyond the licensed quantity which is under consideration of the

Government. In the event of these recommendations being accepted, t

Based on the

amount charged from CDMA operators

for grant of GSM spectrum in 2007, the

value of spectrum held by these

operators beyond the contracted unit

worked out to ̀ 2561 crore though its market value on date would be higher.

he additional flow

of revenue to the Government would come to ̀ 36,993 crore.

Name Amount ofadditionalspectrum(MHz)

No.of

Circles

Aircel

Bharti

BPL (Mumbai)

BSNL

IDEA

MTNL (Delhi & Mumbai)

Reliance

Spice (Punjab)

Vodafone

3.6

32.4

3.8

61.6

12.6

12.4

1.8

1.6

19.6

1

13

1

19

6

2

1

1

7


4.8.3 Violation of 2003 Cabinet decision to allow additional spectrum at 2001 prices

Deviation from a Cabinet decision should normally be with the approval of Cabinet.

However, in the present case, such a crucial decision to permit service providers to

offer access services using combination of technologies (CDMA, GSM and/or any

other) under the same licence with dual spectrum allocation was taken without the

matter being referred to Cabinet.

Undue advantage to Swan Telecom Pvt. Ltd in the allocation of spectrum4.9

It was noted that the priority list was adjusted in Punjab, and Maharashtra service areas to

give undue advantage to Swan Telecom Pvt. Ltd in allocation of spectrum. In Punjab service

area, 15 MHz GSM spectrum was available in September 2008 which was sufficient to meet

the demand of only first three applicants in the priority list i.e. HFCL, Idea Cellular Ltd and

Unitech Wireless Pvt. Ltd. The request of Idea Cellular Ltd who was at the second place in the

priority list was, however, not considered on the grounds of its proposed merger with Spice

Communications Ltd who were offering service in Punjab service area. By keeping out Idea

Cellular Ltd from the priority list, spectrum was allocated to Swan Telecom Pvt. Ltd who was

at the 4th position on the priority list. In identical situation in Maharashtra service area,

Spice Communications Ltd was not allocated start-up spectrum citing its proposed merger

with Idea Cellular Ltd. Here too, the resultant beneficiary was Swan Telecom Pvt. Ltd.

4.9.1. As per DoT guidelines on merger of licenses in a service area, the post merger

licensee shall be entitled to the total amount of spectrum held by the merging

licensees, subject to the condition that after merger, licensee shall meet, within a

period of 3 months from the date of approval of merger by the licensor, the

prevailing spectrum allocation criterion. Hence, non allotment of spectrum to Idea

Cellular Ltd and Spice Communications Ltd on the grounds of merger was against the

DoT guidelines on the issue. Flouting the rules on both occasions by the DoT

benefited Swan Telecom Pvt. Ltd.

4.9.2 The DoT in response to the above observation (July 2010) informed that as the

merger proposal of Idea and Spice were under process, their request for initial

spectrum was not processed and kept reserved for them as per their priority of

spectrum application. Since their formal merger did not complete after several

months, the above operators were allotted initial spectrum which was kept

reserved for them. The response of the DoT ignores the fact that as per the data on

spectrum availability as on September 2008, the demand for only 3 operators could

be fulfilled in the order of their priority of application. Also, as per the priority list the

application of Swan Telecom Ltd was in the fourth position. Hence the allotment of

spectrum to Swan Telecom Ltd ahead of other companies was not as per the

approved principle of FCFS.


Value of spectrum allocated beyond the contracted quantity4.10

It was noticed in audit that 9 operators as

per the details in the box, were allotted

spectrum beyond the upper limit laid

down in the UASL agreement. Thus while

the DoT, on one hand, was not processing

pending applications for licence due to

non availability of spectrum, on the other

hand it was allotting spectrum to existing

operators beyond the contracted limit

without any upfront charges being

imposed or without determination of

market price of spectrum.

The Technical Committee appointed by Hon'ble MoC&IT for “Allocation of Access

(GSM/CDMA) spectrum and pricing” recommended in May 2009, that the additional

spectrum assigned beyond 6.2+6.2 MHz in an service area should attract an upfront charge

equivalent to the 3G auction price from the date of assignment.

Subsequently, TRAI also recommended in May 2010 for charging the additional spectrum

held by operators beyond the licensed quantity which is under consideration of the

Government. In the event of these recommendations being accepted, t

Based on the

amount charged from CDMA operators

for grant of GSM spectrum in 2007, the

value of spectrum held by these

operators beyond the contracted unit

worked out to ̀ 2561 crore though its market value on date would be higher.

he additional flow

of revenue to the Government would come to ̀ 36,993 crore.

Name Amount ofadditionalspectrum(MHz)

No.of

Circles

Aircel

Bharti

BPL (Mumbai)

BSNL

IDEA

MTNL (Delhi & Mumbai)

Reliance

Spice (Punjab)

Vodafone

3.6

32.4

3.8

61.6

12.6

12.4

1.8

1.6

19.6

1

13

1

19

6

2

1

1

7


Out of 122 UAS Licences awarded in 2008, 85 Licences were awarded to the six new entrants

(Unitech brand name Uninor, Swan name changed to Etisalat, Allianz since merged with

Etisalat, Shipping Stop Dot Com name changed to Loop Telecom, Datacom name changed to

Videocon and S Tel) to the telecom sector. As per the conditions of the UAS Licenses, these

licensees were required to roll out the services in the 90 % service area in Metros and 10%

District headquarters (DHQ) in other service areas within 12 months of the date of award of

Licences. Audit found that though these 6 new operators obtained the initial 4.4 Mhz

spectrum in 81 service areas during the period April 2008 to January 2009, none of them had

rolled out their services as per the provisions of the UAS Licences in any service area till 31

December 2009. Since there were many existing telecom UAS Licensees in dire need of this

scarce natural resource, it resulted effectively into hoarding of the finite natural resources of

the Nation by these operators. Thus DOT did not earn any revenue from this natural

resource during 2008-09 and 2009-10 due to inordinate delay in the commencement of

services by these operators. Further, DoT also failed to recover Liquated Damages and

penalty of ` 679 crore from these 6 operators for inordinate delay in the rolling out their

services till 31 December 2009.

Non fulfillment of the Roll out obligations by the New Telecom Licensees4.11


Chapter 5

Financial Impact 5

The entry fee fixed for a pan India UAS Licence was fixed at 1658 crore and as explained in

Chapter 3 this price was the same as that captured from the market for a Cellular Mobile

Service licence in 2001. The decision of the DoT to adopt this price for UAS licences also was

taken in 2003 with a view not to delay the implementation of UASL. The bidding pattern of

2001 would clearly indicate that the 2001 price was discovered in a nascent market and

considering the revolutionary changes in the Indian telecom market since then, there is no

doubt in concluding that the that the same 2001 price did not reflect the true economic

value of a licence and the spectrum bundled with it in 2008. There are two main issues for

consideration:

` 5.1

5.1.1 Whether the entry fee was expected to reflect the value of the spectrum at all?

The 2003 Cabinet decision intended to make the UAS licence only an instrument to

enter the business of providing cellular and other telecom services irrespective of

the technology used for the purpose. Different spectrum bands support different

technology and are used for providing different types of services and thus 2003 UAS

policy, in the second phase of UAS licences, was directed at dissociating Licence from

the type of service that the service provider intends to provide. Once having

obtained a licence or authorisation to provide telecom services, he could obtain

spectrum of required type by paying its price through auction or any other

arrangement decided by an independent regulator to be set up for spectrum pricing

and management. Since the policy was not reviewed for next 4 years, the issue of de-

linking the entry fee from the price for the use of spectrum remained unaddressed.

TRAI in August 2007, while recommending that 2G spectrum should not be

auctioned opined that “in today's dynamism and unprecedented growth of telecom

sector, the entry fee determined in 2001 is also not the realistic price for obtaining a

licence. Perhaps it needs to be reassessed through a market mechanism”. Since no

price discovery of spectrum was attempted for 2G spectrum separately, the entry

fee discovered in 2001 is mainly the price of spectrum that came with UAS licence

5.1.2 What could be the value of the spectrum which was allocated to 122 licensees in

2008 at the price discovered through bidding for licences way back in 2001?

Any loss ascertained while attempting to value the spectrum in hindsight can only be

'presumptive', given the fact that there are varied determinants like its scarcity

value, the nature of competition, business plans envisaged, time of entry,

purchasing power of the people, growth of economy etc., which, in a market

condition, would throw up the actual price at a given time. It was seen that while


Out of 122 UAS Licences awarded in 2008, 85 Licences were awarded to the six new entrants

(Unitech brand name Uninor, Swan name changed to Etisalat, Allianz since merged with

Etisalat, Shipping Stop Dot Com name changed to Loop Telecom, Datacom name changed to

Videocon and S Tel) to the telecom sector. As per the conditions of the UAS Licenses, these

licensees were required to roll out the services in the 90 % service area in Metros and 10%

District headquarters (DHQ) in other service areas within 12 months of the date of award of

Licences. Audit found that though these 6 new operators obtained the initial 4.4 Mhz

spectrum in 81 service areas during the period April 2008 to January 2009, none of them had

rolled out their services as per the provisions of the UAS Licences in any service area till 31

December 2009. Since there were many existing telecom UAS Licensees in dire need of this

scarce natural resource, it resulted effectively into hoarding of the finite natural resources of

the Nation by these operators. Thus DOT did not earn any revenue from this natural

resource during 2008-09 and 2009-10 due to inordinate delay in the commencement of

services by these operators. Further, DoT also failed to recover Liquated Damages and

penalty of ` 679 crore from these 6 operators for inordinate delay in the rolling out their

services till 31 December 2009.

Non fulfillment of the Roll out obligations by the New Telecom Licensees4.11


Chapter 5

Financial Impact 5

The entry fee fixed for a pan India UAS Licence was fixed at 1658 crore and as explained in

Chapter 3 this price was the same as that captured from the market for a Cellular Mobile

Service licence in 2001. The decision of the DoT to adopt this price for UAS licences also was

taken in 2003 with a view not to delay the implementation of UASL. The bidding pattern of

2001 would clearly indicate that the 2001 price was discovered in a nascent market and

considering the revolutionary changes in the Indian telecom market since then, there is no

doubt in concluding that the that the same 2001 price did not reflect the true economic

value of a licence and the spectrum bundled with it in 2008. There are two main issues for

consideration:

` 5.1

5.1.1 Whether the entry fee was expected to reflect the value of the spectrum at all?

The 2003 Cabinet decision intended to make the UAS licence only an instrument to

enter the business of providing cellular and other telecom services irrespective of

the technology used for the purpose. Different spectrum bands support different

technology and are used for providing different types of services and thus 2003 UAS

policy, in the second phase of UAS licences, was directed at dissociating Licence from

the type of service that the service provider intends to provide. Once having

obtained a licence or authorisation to provide telecom services, he could obtain

spectrum of required type by paying its price through auction or any other

arrangement decided by an independent regulator to be set up for spectrum pricing

and management. Since the policy was not reviewed for next 4 years, the issue of de-

linking the entry fee from the price for the use of spectrum remained unaddressed.

TRAI in August 2007, while recommending that 2G spectrum should not be

auctioned opined that “in today's dynamism and unprecedented growth of telecom

sector, the entry fee determined in 2001 is also not the realistic price for obtaining a

licence. Perhaps it needs to be reassessed through a market mechanism”. Since no

price discovery of spectrum was attempted for 2G spectrum separately, the entry

fee discovered in 2001 is mainly the price of spectrum that came with UAS licence

5.1.2 What could be the value of the spectrum which was allocated to 122 licensees in

2008 at the price discovered through bidding for licences way back in 2001?

Any loss ascertained while attempting to value the spectrum in hindsight can only be

'presumptive', given the fact that there are varied determinants like its scarcity

value, the nature of competition, business plans envisaged, time of entry,

purchasing power of the people, growth of economy etc., which, in a market

condition, would throw up the actual price at a given time. It was seen that while


fixing the Reserve Price for 3G and BWA spectrum subsequently, the DoT had

correctly observed that “the key determinants of spectrum value in a competitive

auction (where demand is more than supply) are the level of competition in the

auction and the attractiveness of the business plan for using the spectrum.” Instead

of attempting to come to a specific value of 2G spectrum which could have been

possible only through an efficient market drawn process for price discovery

involving demand and supply position and attractiveness of business plan for using

2G spectrum in future, we have looked at the various indicators to assess a possible

(presumptive) value, from the various records available to Audit rather than going

for any mathematical/econometric models.

Underpricing of 2G and Consequent Loss5.2

5.2.1 UASL applicant had offered higher price

On 5 November 2007 S TEL Limited, who had applied for UAS licence in September

2007, in its communication addressed to the Hon'ble Prime Minister voluntarily

offered to pay additional revenue share of ` 6,000 crore to the DoT for a Pan-India

licence over and above the spectrum charge/ revenue share payable as per existing

policy. S TEL Limited in a further communication addressed to Hon'ble MoC&IT

dated 27 December 2007 enhanced its earlier offer of ` 6000 crore to ` 13,752

crore over a period of ten years for allotment of 6.2 MHz GSM spectrum. The

Company further agreed to increase the bid price in the event of any counter bid or

auction of spectrum for GSM on a Pan-India basis.

5.2.2 If the price offered by S Tel Ltd which he proposed to revise upwards in case of any

counter bids, is used as indicator of market valuation of 6.2 MHz of 2G spectrum at

that time, value in respect of all 122 new licences and 35 licences under dual

technology after discounting the receivables of the future years work out to ̀ 65,909

crore as against ̀ 12,386 crore collected by the DoT as in the table given below.

Category ofLicenses

No oflicense

Offer priceof S Tel fora Pan IndiaLicense

Discounted Price of STel for aPan IndiaLicense

Value as perdiscountedprice ofS Tel

Amountactuallyreceived

Potential loss toexchequer

New UAS Licenses

Dual Technology

Total

122

35

13752

13752

8825

8825

47964

17945

65909

9014

3372

12386

38950

14573

53523

This indicated that had an open process of bidding/auction been used for price discovery

and hasty and abrupt changes in deadlines and dates not been made, it could have been

possible for the Government to have received at least this amount.

( ` in crore)


Value based on prices discovered for 3G spectrum5.3

Auction of 3G spectrum was recommended by TRAI in its Report submitted to Government

in September 2006 in which they had recommended a Reserve Price for one block of 2x5

MHz 3G spectrum pan India at ` 1010 crore which was subsequently enhanced to ` 3500

crore by the EGoM constituted to consider the issues relating to auction of 3G spectrum.

TRAI in its report of 2010 has observed that 2G services today are actually offering 2.75G

services. Therefore

The Authority recommended 3G prices

to be adopted as the current price of spectrum in the 1800 Mhz band and intends to

separately study the subject for apprising the Government of its findings. They have

recommended even higher pricing at 1.5 times of 1800 MhZ band for the 2G spectrum in 800

and 900 Mhz band.

Besides, comparing the 2G and 3G on their varieties of features and the type of services they

could support, scarcity factor and demand and supply position also play important role in

determining market price. It was amply demonstrated between September 2007 and

December 2008 that its demand in view of its scarcity was at its peak and thus would have

fetched the market determined price at a much higher level than that of 2001 entry fee. If

price is calculated at 3G rates which can also be taken as one of the indicators for assessing

the value of 2G spectrum allocated to UAS licensees in 2008, the value works out to

` 1, 11,512 crore against ̀ 9014 crore realised by DoT. Similarly, for spectrum allotted under

the dual technology as referred in Paragraph 4.8, the value would have been ̀ 40526 crore,

as against ` 3,372 crore collected. The total difference in value worked out to ` 1,39,652

crore as in the table given below.

“while comparing spectral efficiency and other factors, it is fair to

compare existing 2.75G systems with 3G systems”.

5.2.3 The DoT replied (July 2010) and again reiterated in the meeting on 4 October 2010

that S Tel had attached conditions to their offer which were not acceptable to the

Government. Moreover, the Company withdrew their offer in the Hon'ble Supreme

Court and hence there was no loss to the Government. The contention of the DoT is

not correct as the S Tel had withdrawn the offer in March 2010 i.e. after more than

two years, when the ground realities in the telecom sector had changed viz the

competitors had already got the UAS licences along with spectrum, established their

infrastructure and started rolling out their services, stiffer competition due to 13/14

operators in certain areas etc.

5.2.4 Further, the offer made by S Tel is included in this report only as an indicator of the

market perception of the value of the 2G spectrum which could have accrued to the

Government if the DoT had resorted to a bidding/auction process for allocation of

2G spectrum in 2008.


fixing the Reserve Price for 3G and BWA spectrum subsequently, the DoT had

correctly observed that “the key determinants of spectrum value in a competitive

auction (where demand is more than supply) are the level of competition in the

auction and the attractiveness of the business plan for using the spectrum.” Instead

of attempting to come to a specific value of 2G spectrum which could have been

possible only through an efficient market drawn process for price discovery

involving demand and supply position and attractiveness of business plan for using

2G spectrum in future, we have looked at the various indicators to assess a possible

(presumptive) value, from the various records available to Audit rather than going

for any mathematical/econometric models.

Underpricing of 2G and Consequent Loss5.2

5.2.1 UASL applicant had offered higher price

On 5 November 2007 S TEL Limited, who had applied for UAS licence in September

2007, in its communication addressed to the Hon'ble Prime Minister voluntarily

offered to pay additional revenue share of ` 6,000 crore to the DoT for a Pan-India

licence over and above the spectrum charge/ revenue share payable as per existing

policy. S TEL Limited in a further communication addressed to Hon'ble MoC&IT

dated 27 December 2007 enhanced its earlier offer of ` 6000 crore to ` 13,752

crore over a period of ten years for allotment of 6.2 MHz GSM spectrum. The

Company further agreed to increase the bid price in the event of any counter bid or

auction of spectrum for GSM on a Pan-India basis.

5.2.2 If the price offered by S Tel Ltd which he proposed to revise upwards in case of any

counter bids, is used as indicator of market valuation of 6.2 MHz of 2G spectrum at

that time, value in respect of all 122 new licences and 35 licences under dual

technology after discounting the receivables of the future years work out to ̀ 65,909

crore as against ̀ 12,386 crore collected by the DoT as in the table given below.

Category ofLicenses

No oflicense

Offer priceof S Tel fora Pan IndiaLicense

Discounted Price of STel for aPan IndiaLicense

Value as perdiscountedprice ofS Tel



New UAS Licenses

Dual Technology

Total

122

35

13752

13752

8825

8825

47964

17945

65909

9014

3372

12386

38950

14573

53523

This indicated that had an open process of bidding/auction been used for price discovery

and hasty and abrupt changes in deadlines and dates not been made, it could have been

possible for the Government to have received at least this amount.

( ` in crore)


Value based on prices discovered for 3G spectrum5.3

Auction of 3G spectrum was recommended by TRAI in its Report submitted to Government

in September 2006 in which they had recommended a Reserve Price for one block of 2x5

MHz 3G spectrum pan India at ` 1010 crore which was subsequently enhanced to ` 3500

crore by the EGoM constituted to consider the issues relating to auction of 3G spectrum.

TRAI in its report of 2010 has observed that 2G services today are actually offering 2.75G

services. Therefore

The Authority recommended 3G prices

to be adopted as the current price of spectrum in the 1800 Mhz band and intends to

separately study the subject for apprising the Government of its findings. They have

recommended even higher pricing at 1.5 times of 1800 MhZ band for the 2G spectrum in 800

and 900 Mhz band.

Besides, comparing the 2G and 3G on their varieties of features and the type of services they

could support, scarcity factor and demand and supply position also play important role in

determining market price. It was amply demonstrated between September 2007 and

December 2008 that its demand in view of its scarcity was at its peak and thus would have

fetched the market determined price at a much higher level than that of 2001 entry fee. If

price is calculated at 3G rates which can also be taken as one of the indicators for assessing

the value of 2G spectrum allocated to UAS licensees in 2008, the value works out to

` 1, 11,512 crore against ̀ 9014 crore realised by DoT. Similarly, for spectrum allotted under

the dual technology as referred in Paragraph 4.8, the value would have been ̀ 40526 crore,

as against ` 3,372 crore collected. The total difference in value worked out to ` 1,39,652

crore as in the table given below.

“while comparing spectral efficiency and other factors, it is fair to

compare existing 2.75G systems with 3G systems”.

5.2.3 The DoT replied (July 2010) and again reiterated in the meeting on 4 October 2010

that S Tel had attached conditions to their offer which were not acceptable to the

Government. Moreover, the Company withdrew their offer in the Hon'ble Supreme

Court and hence there was no loss to the Government. The contention of the DoT is

not correct as the S Tel had withdrawn the offer in March 2010 i.e. after more than

two years, when the ground realities in the telecom sector had changed viz the

competitors had already got the UAS licences along with spectrum, established their

infrastructure and started rolling out their services, stiffer competition due to 13/14

operators in certain areas etc.

5.2.4 Further, the offer made by S Tel is included in this report only as an indicator of the

market perception of the value of the 2G spectrum which could have accrued to the

Government if the DoT had resorted to a bidding/auction process for allocation of

2G spectrum in 2008.


Sale of equity by UAS licensee firms at higher value5.4

As per the DoT guidelines on UASL, the total composite foreign direct investment i.e., FDI by

an applicant company should not exceed 74 per cent. The 74 per cent foreign investment

can be made directly or indirectly in the operating company or through a holding company

and the remaining 26 per cent will be owned by resident Indian citizens or an Indian

Company.

5.4.1 There were several UAS licensees including the new entrants, which have been able

to attract significant foreign investments in the recent past. The DoT has given a list

of operators who could attract foreign investments, consequent to the grant of UAS

Licenses in January 2008 as in the Table on the next page:

The DoT stated that it was incorrect to calculate the notional loss to the Government for

allotment of initial spectrum to new operators for 2G services at 3G price which itself has

been recommended by the TRAI beyond 6.2 MHz and which were presently under

reconsideration of TRAI.

Audit reiterates that specific value of 2G spectrum could have been discovered only through

an efficient market drawn process and in its absence, these are the indicators available

which give the hints towards the loss Government could have suffered. The revenue realised

through auction of 3G at the rate fetched through a market process is highlighted in this

report to project the benefits of resorting to an open price discovery process and the value

that spectrum could command without compromising with the policy of open competition.

The fact also remains that the Government got ̀ 1.03 lakh crore from the auction of 3G and

BWA spectrum against their own estimate of ̀ 35,000 crore.

Category ofLicenses

No oflicense

3G rate forPan India Licence

Value asper 3G rate

Amount actuallyreceived


New UAS Licenses

Dual Technology

Total

122

35

16750

16750

111512

40526

152038

9014

3372

12386

102498

37154

139652

(` in crore)


Out of the above six, three companies viz. Swan Telecom, S Tel and Unitech were new

entrants in the telecom sector. The fact that these operators could draw huge foreign

investments, even before establishing a foothold in the Indian telecom market would

suggest that acquiring UASL and with it, allotment of 4.4 MHz of GSM spectrum for roll out,

was the main factor which attracted the foreign investment.

5.4.2 The Unitech Wireless Services, claimed in their letter to the DoT on 4 November

2008 that Telenor was partnering with them at a stage when about 6 months of

effort and ` 2100 crore of expenses had already been put in and the entity's value

was not only that of spectrum. However, considering that Telenor is an established

international provider of a high quality telecommunications, data and media

communication services and one of the Norway's largest companies owned 54% by

the Norway Government, what they would have required to run their business in

this country was, primarily access to the spectrum. Considering its trained

manpower strength in 12 countries, its long standing technical expertise and

international experience of dealing in telecom business, it can be convincingly

concluded that, the high value paid by them was primarily for the spectrum and not

for other inputs claimed to have been infused by Unitech. Such huge equity infusion

by the investor company was a price that they paid for 2G spectrum which was

allocated to Unitech, a Company with no experience in telecommunication sector,

at a throw away price by the DoT. The value which should have accrued to the public

exchequer went as a favour to the new licencees in the form of huge capital infusion

for enriching their business.

Name of the Operator Percentage ofequity transferred

Value of equitytransferred ` in crore

Name of the Company

Seller Buyer

1. Swan Telecom (Now Etisalat DB Telecom)

4. Unitech


5. Tata Teleservices

3. S Tel

6. Tata teleservices (Maharashtra) (TTML)

7. Sistema Shyam Teleservices Ltd. (SSTL)

5.27%(prposed)

67.25%

44.73%

27.31%

5.61%(proposed)

20.25%

63.71%

Fresh Issue

380.50

6120crore

3217

12924crore

238.5 crore

949 crore

210.33 crore

US$ 678million

(3051 crore)

Genex Exim

Unitech Limited(Indian)

Swan Telecom

TTSL (Indian)

Sky city Foundations (India)

TTML (Indian)

Shyam Telelinks(Indian)

SSTL (JV with 74% FDI)

Telecom Investment(Foreign)

EtisalatMauritius

Telenor Asia(Foreign)

Etisalat InternatinalIndia Ltd.

NTT Docomo(Foreign)

BMIC, Mauritius(Foreign)

NTT Docomo(Foreign)

Sistema Joint Stock (Foreign)

ROSIMUSHCHESTVO (Foreign)


Sale of equity by UAS licensee firms at higher value5.4

As per the DoT guidelines on UASL, the total composite foreign direct investment i.e., FDI by

an applicant company should not exceed 74 per cent. The 74 per cent foreign investment

can be made directly or indirectly in the operating company or through a holding company

and the remaining 26 per cent will be owned by resident Indian citizens or an Indian

Company.

5.4.1 There were several UAS licensees including the new entrants, which have been able

to attract significant foreign investments in the recent past. The DoT has given a list

of operators who could attract foreign investments, consequent to the grant of UAS

Licenses in January 2008 as in the Table on the next page:

The DoT stated that it was incorrect to calculate the notional loss to the Government for

allotment of initial spectrum to new operators for 2G services at 3G price which itself has

been recommended by the TRAI beyond 6.2 MHz and which were presently under

reconsideration of TRAI.

Audit reiterates that specific value of 2G spectrum could have been discovered only through

an efficient market drawn process and in its absence, these are the indicators available

which give the hints towards the loss Government could have suffered. The revenue realised

through auction of 3G at the rate fetched through a market process is highlighted in this

report to project the benefits of resorting to an open price discovery process and the value

that spectrum could command without compromising with the policy of open competition.

The fact also remains that the Government got ̀ 1.03 lakh crore from the auction of 3G and

BWA spectrum against their own estimate of ̀ 35,000 crore.

Category ofLicenses

No oflicense

3G rate forPan India Licence

Value asper 3G rate

Amount actuallyreceived


New UAS Licenses

Dual Technology

Total

122

35

16750

16750

111512

40526

152038

9014

3372

12386

102498

37154

139652

(` in crore)


Out of the above six, three companies viz. Swan Telecom, S Tel and Unitech were new

entrants in the telecom sector. The fact that these operators could draw huge foreign

investments, even before establishing a foothold in the Indian telecom market would

suggest that acquiring UASL and with it, allotment of 4.4 MHz of GSM spectrum for roll out,

was the main factor which attracted the foreign investment.

5.4.2 The Unitech Wireless Services, claimed in their letter to the DoT on 4 November

2008 that Telenor was partnering with them at a stage when about 6 months of

effort and ` 2100 crore of expenses had already been put in and the entity's value

was not only that of spectrum. However, considering that Telenor is an established

international provider of a high quality telecommunications, data and media

communication services and one of the Norway's largest companies owned 54% by

the Norway Government, what they would have required to run their business in

this country was, primarily access to the spectrum. Considering its trained

manpower strength in 12 countries, its long standing technical expertise and

international experience of dealing in telecom business, it can be convincingly

concluded that, the high value paid by them was primarily for the spectrum and not

for other inputs claimed to have been infused by Unitech. Such huge equity infusion

by the investor company was a price that they paid for 2G spectrum which was

allocated to Unitech, a Company with no experience in telecommunication sector,

at a throw away price by the DoT. The value which should have accrued to the public

exchequer went as a favour to the new licencees in the form of huge capital infusion

for enriching their business.

Name of the Operator Percentage ofequity transferred

Value of equitytransferred ` in crore

Name of the Company

Seller Buyer


4. Unitech


5. Tata Teleservices

3. S Tel

6. Tata teleservices (Maharashtra) (TTML)

7. Sistema Shyam Teleservices Ltd. (SSTL)

5.27%(prposed)

67.25%

44.73%

27.31%

5.61%(proposed)

20.25%

63.71%

Fresh Issue

380.50

6120crore

3217

12924crore

238.5 crore

949 crore

210.33 crore

US$ 678million

(3051 crore)

Genex Exim

Unitech Limited(Indian)

Swan Telecom

TTSL (Indian)

Sky city Foundations (India)

TTML (Indian)

Shyam Telelinks(Indian)

SSTL (JV with 74% FDI)

Telecom Investment(Foreign)

EtisalatMauritius

Telenor Asia(Foreign)

Etisalat InternatinalIndia Ltd.

NTT Docomo(Foreign)

BMIC, Mauritius(Foreign)

NTT Docomo(Foreign)

Sistema Joint Stock (Foreign)

ROSIMUSHCHESTVO (Foreign)


5.4.3 Based on the above premise, a comparison of foreign equity attracted by the new entrants in the Indian telecom market would reveal that the cost of a pan India licence could be a value between ` 7758 crore to ` 9100 crore. However, the DoT issued pan India licences at ` 1658 crore. As a result 122 licenses and 35 dual technology approvals issued in 2008 could have earned the revenue ranging from` 58,000 crore to ` 68,000 crore to the Government against the actual revenues of ̀ 12,386 crore earned by them.

5.4.4 The DoT responded to the audit attempts to project a probable value for spectrum by stating that the calculation by Audit was a hypothetical arithmetic exercise and not correct. The attempt by Audit is only to highlight that the price discovery of spectrum through a market mechanism would have fetched a much higher value and thus increased receipts for Government. Non discovery of Price of spectrum through competitive bids/auction in 2007-08 has resulted in huge undue advantage to some of the newly incorporated firms with little or no experience in the Telecom Sector. This is particularly so when the Government of India had followed the market mechanism to determine value of cellular mobile licenses since early 1990s.

Name of the Company

Category

Unitech to(Now BrandName Unior)

New Licences

Dual Technology


Total

38950

14573

13841

67364

102498

37154

36993

176645

40442

15132

14052

69626

33230

12433

12003

57666

Swan TelecomLtd. (NowEtisalat DBTelecom)


Value ofequitysold

S Tel rate



6120(67.25%)

380.50(5.27%)

3217(44.73%)

Value ofcentpercentequity

9100

7220

7192

No. ofserviceareascovered

22

13

13

Entryfeepaid

1658

1537

1537

Valuefor 22servicearea

9100

7788

7758

122licence

49456

42244

35 dualtech

18504

15805

Total

67960

58049


12386

12386

Potential revenue


Potentialloss toexchequer

Unitech Swan

55574

45663

Indicators of the value of 2G spectrum5.5

Based on the values determined through various indicators, the loss to the Government on account of grant of new UAS licenses and 2G spectrum during the period 2007-2010 would appear to be in the following range:

In an open transparent system, there is a possibility that Government would have earned even more revenue than that these new entrants have been able to attract.


Chapter 6

Conclusion 6

Drawing upon NTP 99, a policy framework was established in November 2003 to chart the

course for implementation of a Universal Licensing Regime. The Department of

Telecommunications of the Ministry of Communications and Information Technology did

not make mid course review/modifications, based on the collective wisdom of Government.

The recommendations of Telecom Regulatory Authority of India were not followed in spirit,

resulting in a transitory phase of the licensing regime continuing for years together without

true value of 2G spectrum being realised, while 3G spectrum, a similar resource, was

allocated at market price discovered through auction, generating revenues of ` 67,718.95

crore. While targeted growth in tele-density had already been achieved, and a reduction in

tariff in the telecom sector had benefitted the customer, as envisaged in NTP-99, a policy to

ensure optimal utilisation of spectrum and a method to discover its market price was not

considered. Given its scarcity value and increasing demand, a comprehensive evaluation of

available spectrum was required which was not done. With the UAS policy and its

subsequent amendments being implemented in a weak and indeterminate manner and

with the reluctance on the part of the Department of Telecommunications to address the

issue of pricing of 2G spectrum, it was only natural that 2G spectrum was not allocated at its

correct market value.

The entire process of allocation of UAS licences lacked transparency and was undertaken in

an arbitrary, unfair and inequitable manner. The Hon'ble Prime Minister had stressed on the

need for a fair and transparent allocation of spectrum, and the Ministry of Finance had

sought for the decision regarding spectrum pricing to be considered by an EGoM. Brushing

aside their concerns and advices, the Department of Telecommunications, in 2008,

proceeded to issue 122 new licences for 2G spectrum at 2001 prices, by flouting every

cannon of financial propriety, rules and procedures. The DoT did not follow its own

guidelines on eligibility conditions, arbitrarily changed the cut off date for receipt of

applications post facto and altered the conditions of the FCFS procedure at crucial junctures

without valid and cogent reasons, which gave unfair advantage to certain companies over

others.

The Department of Telecommunications also did not do the requisite due diligence in the

examination of the applications submitted for the UAS licenses, leading to the grant of 85

out of 122 UAS licences to ineligible applicants. These companies, created barely months

ago, deliberately suppressed facts, disclosed incomplete information, submitted fictitious

documents and used fraudulent means for getting UAS licences and thereby access to

6.1

6.2

6.3


5.4.3 Based on the above premise, a comparison of foreign equity attracted by the new entrants in the Indian telecom market would reveal that the cost of a pan India licence could be a value between ` 7758 crore to ` 9100 crore. However, the DoT issued pan India licences at ` 1658 crore. As a result 122 licenses and 35 dual technology approvals issued in 2008 could have earned the revenue ranging from` 58,000 crore to ` 68,000 crore to the Government against the actual revenues of ̀ 12,386 crore earned by them.

5.4.4 The DoT responded to the audit attempts to project a probable value for spectrum by stating that the calculation by Audit was a hypothetical arithmetic exercise and not correct. The attempt by Audit is only to highlight that the price discovery of spectrum through a market mechanism would have fetched a much higher value and thus increased receipts for Government. Non discovery of Price of spectrum through competitive bids/auction in 2007-08 has resulted in huge undue advantage to some of the newly incorporated firms with little or no experience in the Telecom Sector. This is particularly so when the Government of India had followed the market mechanism to determine value of cellular mobile licenses since early 1990s.

Name of the Company

Category

Unitech to(Now BrandName Unior)

New Licences

Dual Technology


Total

38950

14573

13841

67364

102498

37154

36993

176645

40442

15132

14052

69626

33230

12433

12003

57666



Value ofequitysold

S Tel rate



6120(67.25%)

380.50(5.27%)

3217(44.73%)

Value ofcentpercentequity

9100

7220

7192

No. ofserviceareascovered

22

13

13

Entryfeepaid

1658

1537

1537

Valuefor 22servicearea

9100

7788

7758

122licence

49456

42244

35 dualtech

18504

15805

Total

67960

58049


12386

12386

Potential revenue


Potentialloss toexchequer

Unitech Swan

55574

45663

Indicators of the value of 2G spectrum5.5

Based on the values determined through various indicators, the loss to the Government on account of grant of new UAS licenses and 2G spectrum during the period 2007-2010 would appear to be in the following range:

In an open transparent system, there is a possibility that Government would have earned even more revenue than that these new entrants have been able to attract.


Chapter 6

Conclusion 6

Drawing upon NTP 99, a policy framework was established in November 2003 to chart the

course for implementation of a Universal Licensing Regime. The Department of

Telecommunications of the Ministry of Communications and Information Technology did

not make mid course review/modifications, based on the collective wisdom of Government.

The recommendations of Telecom Regulatory Authority of India were not followed in spirit,

resulting in a transitory phase of the licensing regime continuing for years together without

true value of 2G spectrum being realised, while 3G spectrum, a similar resource, was

allocated at market price discovered through auction, generating revenues of ` 67,718.95

crore. While targeted growth in tele-density had already been achieved, and a reduction in

tariff in the telecom sector had benefitted the customer, as envisaged in NTP-99, a policy to

ensure optimal utilisation of spectrum and a method to discover its market price was not

considered. Given its scarcity value and increasing demand, a comprehensive evaluation of

available spectrum was required which was not done. With the UAS policy and its

subsequent amendments being implemented in a weak and indeterminate manner and

with the reluctance on the part of the Department of Telecommunications to address the

issue of pricing of 2G spectrum, it was only natural that 2G spectrum was not allocated at its

correct market value.

The entire process of allocation of UAS licences lacked transparency and was undertaken in

an arbitrary, unfair and inequitable manner. The Hon'ble Prime Minister had stressed on the

need for a fair and transparent allocation of spectrum, and the Ministry of Finance had

sought for the decision regarding spectrum pricing to be considered by an EGoM. Brushing

aside their concerns and advices, the Department of Telecommunications, in 2008,

proceeded to issue 122 new licences for 2G spectrum at 2001 prices, by flouting every

cannon of financial propriety, rules and procedures. The DoT did not follow its own

guidelines on eligibility conditions, arbitrarily changed the cut off date for receipt of

applications post facto and altered the conditions of the FCFS procedure at crucial junctures

without valid and cogent reasons, which gave unfair advantage to certain companies over

others.

The Department of Telecommunications also did not do the requisite due diligence in the

examination of the applications submitted for the UAS licenses, leading to the grant of 85

out of 122 UAS licences to ineligible applicants. These companies, created barely months

ago, deliberately suppressed facts, disclosed incomplete information, submitted fictitious

documents and used fraudulent means for getting UAS licences and thereby access to

6.1

6.2

6.3


Dual Technology was also introduced by the DoT in October 2007 in a hasty and arbitrary

manner and in-principle approval was given to 3 operators on a day prior to the

announcement of the policy, which gave the perception of discrimination against other

players in the field. Further this decision was in contravention of the Cabinet decision of

2003, resulting in additional spectrum being allotted to certain operators at 2001 price.

The correct value of 2G spectrum allotted to 122 licences in 2008 and the 35 licences under

dual technology, also in 2008, could have been determined only by a market driven process,

if adopted. However, its presumptive value, based on various available indicators has been

indicated in the Chapter 5. In addition, the value of additional spectrum allotted beyond the

contractual amount to existing nine operators, based on various indicators has been shown

in the Chapter 4 and 5.

In conclusion, it is observed that despite having themselves sought the opinion of the

Ministry of Law and Justice, the Department of Telecommunications decided to ignore the

advice received. The concerns of the Ministry of Finance were also not addressed for

reasons which are not convincing. In fact, the directions of the Hon’ble Prime Minister

evoked a response from the Hon’ble Minister of Communications and Information

Technology on the same day. The letter contained assurances with regard to the availability

of spectrum for all applicants as also with regard to the strict adherence to the FCFS policy

for allocation of spectrum. The assurances, however, were not adhered to. The

methodology for allocation of 2G spectrum, a scarce finite national asset and for which

there was an unprecedented demand for allocation, was not deliberated upon by the full

Telecom Commission. Audit is of the view that such discussion with different stake holders

represented in the Telecom Commission would certainly have benefitted Department of

Telecommunications in arriving at a more credible and transparent procedure for allocation

as also for ascertaining the true value of 2G spectrum. The entire implementation process

does not withstand the test of scrutiny, and hence, the widely held belief that it has

benefitted a few operators and has not been able to maximise generation of revenue from

allocation of such a scarce resource. This has now been confirmed in Audit. The role of

Telecom Regulatory Authority of India would also appear to have been reduced to that of a

hapless spectator as its recommendations were either ignored or applied selectively. The

entire process of allocation of 2G spectrum raises serious concern about the systems of

governance in the Department of Telecommunications which need to be thoroughly

6.4

6.5

6.6

spectrum. Owners of these licences, obtained at unbelievably low price, have in turn sold

significant stakes in their companies to the Indian/foreign companies at high premium

within a short period of time. The premium earned by these new entrants to the telecom

sector was nothing but the true value of the spectrum, which should have normally accrued

to the public exchequer, had the transparent and fair market mechanism been followed for

the allocation of UAS licences.


reviewed and revamped. The fact that there has been loss to the national exchequer in the

allocation of 2G spectrum cannot be denied. However, the amount of loss could be debated. To

ensure that such lapses do not occur in any Ministry or Department of the Government, there is an

imperative need to fix responsibility and enforce accountability for the lapses highlighted in the

Audit Report.

New DelhiDate: 8 November, 2010


Countersigned

(R. P. SINGH)Director General of Audit

Post and Telecommunications

(VINOD RAI)Comptroller and Auditor General of India


Dual Technology was also introduced by the DoT in October 2007 in a hasty and arbitrary

manner and in-principle approval was given to 3 operators on a day prior to the

announcement of the policy, which gave the perception of discrimination against other

players in the field. Further this decision was in contravention of the Cabinet decision of

2003, resulting in additional spectrum being allotted to certain operators at 2001 price.

The correct value of 2G spectrum allotted to 122 licences in 2008 and the 35 licences under

dual technology, also in 2008, could have been determined only by a market driven process,

if adopted. However, its presumptive value, based on various available indicators has been

indicated in the Chapter 5. In addition, the value of additional spectrum allotted beyond the

contractual amount to existing nine operators, based on various indicators has been shown

in the Chapter 4 and 5.

In conclusion, it is observed that despite having themselves sought the opinion of the

Ministry of Law and Justice, the Department of Telecommunications decided to ignore the

advice received. The concerns of the Ministry of Finance were also not addressed for

reasons which are not convincing. In fact, the directions of the Hon’ble Prime Minister

evoked a response from the Hon’ble Minister of Communications and Information

Technology on the same day. The letter contained assurances with regard to the availability

of spectrum for all applicants as also with regard to the strict adherence to the FCFS policy

for allocation of spectrum. The assurances, however, were not adhered to. The

methodology for allocation of 2G spectrum, a scarce finite national asset and for which

there was an unprecedented demand for allocation, was not deliberated upon by the full

Telecom Commission. Audit is of the view that such discussion with different stake holders

represented in the Telecom Commission would certainly have benefitted Department of

Telecommunications in arriving at a more credible and transparent procedure for allocation

as also for ascertaining the true value of 2G spectrum. The entire implementation process

does not withstand the test of scrutiny, and hence, the widely held belief that it has

benefitted a few operators and has not been able to maximise generation of revenue from

allocation of such a scarce resource. This has now been confirmed in Audit. The role of

Telecom Regulatory Authority of India would also appear to have been reduced to that of a

hapless spectator as its recommendations were either ignored or applied selectively. The

entire process of allocation of 2G spectrum raises serious concern about the systems of

governance in the Department of Telecommunications which need to be thoroughly

6.4

6.5

6.6

spectrum. Owners of these licences, obtained at unbelievably low price, have in turn sold

significant stakes in their companies to the Indian/foreign companies at high premium

within a short period of time. The premium earned by these new entrants to the telecom

sector was nothing but the true value of the spectrum, which should have normally accrued

to the public exchequer, had the transparent and fair market mechanism been followed for

the allocation of UAS licences.


reviewed and revamped. The fact that there has been loss to the national exchequer in the

allocation of 2G spectrum cannot be denied. However, the amount of loss could be debated. To

ensure that such lapses do not occur in any Ministry or Department of the Government, there is an

imperative need to fix responsibility and enforce accountability for the lapses highlighted in the

Audit Report.



Countersigned

(R. P. SINGH)Director General of Audit

Post and Telecommunications

(VINOD RAI)Comptroller and Auditor General of India

ANNEXURES

ANNEXURES


Annexure-I


Annexure-I


Annexure-II



Annexure-II




Annexure-III



Annexure-III



Annexure-IV



Annexure-IV



Annexure-V



Annexure-V


Annexure-VI



Annexure-VI








Annexure-VII



Annexure-VII

© Comptroller and Auditor General of India

2010-11Website: http://www.cag.gov.in

PRICEINLAND: ` 65.00

FOREIGN: US$ 5.00(Including postage/air mail)

Documents

Issue of Licences and Allocation of 2G Spectrum - …drop.ndtv.com/pdf/CAG.pdf · shift to a revenue sharing regime in National Telecom Policy ... Issue of Licences and Allocation